There will be less cash available for new spending measures next year in the October budget, as Ministers face the tightest budget since before the Covid-19 pandemic, according to figures published by the Government on Wednesday.
Government spending on day-to-day services and building new infrastructure will grow by €7 billion next year to €125.5 billion, Minister for Finance Simon Harris and Minister for Public Expenditure Jack Chambers announced after the Cabinet approved the Summer Economic Statement.
The statement, one of the key budgetary documents published by the Government over the course of the year, shows new spending and tax adjustments is planned at €8.5 billion, with €1.5 billion in tax changes.
The package is likely to be mostly composed of changes to tax bands to ensure rising wages do not lead to workers paying more tax.
Harris declined to be drawn on any further detail of the likely tax changes, and was also non-committal on plans to increase excise rates after September 1st and the carbon tax on budget day.
“It’s clear the moderation of spending for 2027 will involve less new measures than what we had in recent years,” Chambers said.
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He said if Ministers were seeking to fund new measures and programmes, they would have to seek savings within their existing budgets. He repeatedly said the spending ceiling would not be raised, despite expected pressures.
Out of the €7 billion cash increase planned for spending next year, the great bulk will be eaten by the increasing cost of providing the same level services, the costs of an ageing and growing population, a contingency fund, as well as the costs of any new public sector pay deal.
It is understood this will leave little room for new measures by Ministers.
On the tax side, Harris insisted the package in the budget would seek to “make work pay” by concentrating on personal income tax, and there is a strong expectation the level at which workers move to the higher rate of tax will be increased.
But Harris warned the focus on substantial personal income tax changes this year would mean there are less resources available for any other tax changes.
It is expected, however, that additional revenue raising measures in the budget – including the retention of the bank levy, which should raise an additional €200 million – will give Harris extra headroom to make tax reductions elsewhere.
The document, which contains an up-to-date economic assessment, says the Irish economy remains in a healthy position, with threats diminishing slightly since the last update in the spring.
However, the risks posed by the unsettled international situation, especially in the Middle East which the document says “threatened to put a spanner in the works”, and the potential for an AI “correction” in global markets, remain considerable.
While acknowledging the strength and resilience of the economy, the document states: “But this does not mean that the economy is shock proof.”
The document also points to the highly unbalanced nature of the revenue base for the State. Just 10 companies, it says, account for nearly 20 per cent of total tax revenues.
At the same time, the top 5 per cent of income tax payers account for one euro in every six collected across all tax headings.
In an initial response the Irish Fiscal Advisory Council, the State’s budgetary watchdog, criticised the proposed budget package.
It said that spending overruns this year were likely to spill over into next year, pointing out that budget limits have not been kept in recent years. “This all points to poor planning and budgeting,” it said.
The council said Ireland would remain “highly reliant on risky corporation tax receipts.”