Budget to include €500m in tax cuts

Minister for Public Expenditure, Michael McGrath confirmed that due to the complexity of dealing with the pandemic bonus, it will now not be announced in the Budget.

The Government will announce additional spending measures totalling €4.7bn, including €500m in tax cuts on Budget Day, ministers Paschal Donohoe and Michael McGrath have said.

Despite a sharp increase in forecasts of economic growth, Mr Donohoe said the parameters already committed to will pertain on Tuesday, October 12. Despite the uplift in growth, Mr Donohoe said that no extra funds would be allocated for the budget day package despite the improved outlook.

However, there will be pressure on both ministers to increase spending from backbenchers and their fellow ministers and in reality, come Budget Day, an increase in spending is highly likely.

Mr McGrath confirmed that due to the complexity of dealing with the pandemic bonus, it will now not be announced in the Budget.

“This is not an issue that will be dealt with as part of the budget. The government absolutely accepts there is a need for recognition of the extraordinary efforts of so many people across the country,” he said.

“We will now embark on a period of discussion and consultation with the trade unions but also employer bodies, and indeed civic society as well to try to come up with a recognition that is fair, that also remembers tragically we lost over 5000 people so far,” he said.

At a briefing, the Department of Finance now expects GDP to grow by 15% this year. This is a revision upwards from just over 8.8% in the Summer Economic Statement. 

The Department’s chief economist, John McCarthy said a more realistic measure is an expected 5.25% rise in the domestic economy, with forecasts for next year also upgraded to 6.5%. The forecasts have been endorsed by the Irish Fiscal Advisory Council as part of the preparations for Budget 2022, as is legally required.

Mr McGrath said that of the €4.7bn in new spending, just about €1bn is not already accounted for and is available for new measures. Mr Donohoe said the Budget parameters do not factor in the likelihood of a further lockdown given the high-level of the vaccine roll-out.

Mr McGrath said Covid-related spending is due to fall from €15bn this year to €7bn, of which several billion will be kept in reserve in case any economic shock occurs.

In his presentation, Mr McCarthy said the vaccine wall, as he described it, has improved the economic outlook since the summer.

A resurgence in consumer spending is pushing growth higher and this will be boosted further when the bulk of remaining restrictions are removed on October 22, Mr McCarthy said.

Mr McCarthy said the unemployment rate is expected to average 16.8% this year and 7% next year, lower than previous forecasts.