Income tax cuts ruled out for budget

By Elaine Loughlin and Daniel McConnell

Minister for Finance Paschal Donohoe has ruled out any cuts in personal tax or increases to the old age pension in the budget.

Confirming he will prepare the budget for a no-deal Brexit, Mr Donhoe won Cabinet approval yesterday to limit additional spending in 2020 to €2.8bn, of which just €700m is unallocated.

Speaking to the Irish Examiner, Mr Donohoe said there will be “minimal” changes to the tax code, and ruled out cuts to income and personal taxes.

“There is a case and indeed a need to make further personal tax deductions before Brexit, I’m not going to do that.”

“I will have to make changes in our personal tax code to deal with a potential change, for example, in the minimum wage. There are the kind of changes that I still want to ensure that I make,” he said.

He also said that increases to social welfare payments would be “targeted” at the most vulnerable but made clear increases to the old-age pension, carers payments and other welfare increases are not likely.

Mr Donohoe confirmed:

• There will be no cuts to income tax or USC;
• There will not be any across-the-board increases in welfare payments, insisting packages will be “targeted”;
• If a no-deal Brexit occurs, total spending packages may exceed €2.8bn, but money will have to be borrowed to fund such spending increases;
• A total of €900m will be allocated for capital spending;
• There will be no second budget, even if a Brexit deal is reached before October 31.

“The social welfare plan for this year will be targeted, it will be focused on helping those who are vulnerable. We will have a social welfare package in the budget but it will be different in scale of previous years. I’m going to have to work through all of that now, what my cabinet colleagues, and with Fianna Fáil in the coming week,” Mr Donohoe said.

“I am going to make very safe choices in relation to taxation and I am confident that even with the different pressures that we will have to deal with as we move through to the year that we will deliver our surplus target for the year,” he said.

The finance minister has confirmed that he will now be solely focusing on a no-deal budget meaning there will be many areas where he would like to increase investment but will not be able to do so.

Mr Donohoe said he is “confident” the country can avoid drifting into recession in the case of a no-deal, but said growth could slow to under 1%.

This is a challenge, but it is a challenge that we are capable of moving through. In the early phase of this, I’m announcing here today that we will still be increasing spending.

“I’m just making the point that we’re going to have to spend that money differently.

“And I’m very confident that our country will be able to get through the kind of challenge that a disorderly Brexit may bring, if that’s where we end up.”

Mr Donohoe confirmed that an overrun in the health budget, which now amounts to €17bn, will occur this year, but insisted it will be significantly smaller than the percentage increase needed in 2018.

“We have seen a really significant improvement in the management of health expenditure for this year. The situation and health and our overall supplementary situation will be very, very different to where we were last year,” he said.

Responding, Sinn Féin president Mary Lou McDonald has warned the Government not to use the Brexit crisis as an “excuse” or “pre-text” to impose an austerity budget that will “lurch” the country “further to the right”.

Speaking to reporters at the party’s annual pre-Dáil think-in in Dundalk as Mr Donohoe confirmed next month’s budget will be based on a no-deal Brexit, Ms McDonald insisted ordinary people must be protected.