Childcare costs cut and welfare payments increased in Government's €11bn 'cost of living' budget

Childcare costs cut and welfare payments increased in Government's €11bn 'cost of living' budget

Minister for Finance Pascal Donohue pictured in the Department of Finance prior to the delivery of Budget 2023. Picture: Government Information Service

The Government has delivered the largest budget in the history of the State in response to the cost of living crisis.

An €11bn package will be split between new measures and once-off payments worth hundreds of euro.

Budget 2023 - At a glance

  • Pack of 20 cigarettes up 50c and pro-rata increase on other tobacco products 
  • Help to Buy extended at current rates until the end of 2024 
  • €87m for retrofits in 2023, €930m for water services
  • Vacant Homes Tax introduced, will apply to homes occupied for less than 30 days a year and charged at a rate three times the Local Property Tax 
  • Carbon tax increase of €7.50 a tonne from October 12. Price of petrol and diesel will go up by 2c per litre. Government is reducing the National Oil Reserves Agency levy to 0% to offset the cost. This is worth 2c a litre.
  • €3,200 increase in the income tax standard rate cut-off point for all earners, from €36,800 to €40,000 for single individuals and from €45,800 to €49,000 for married couples and civil partners.
  • Total health budget of €23.4bn, Delivery of 650 acute and community beds by end of 2023, Funding to recruit 6,000 additional staff to the health service, all inpatient hospital charges will be abolished
  • Main tax credits (personal, employee, earned income) raised by €75
  • 2% increase in USC band ceiling from €21,295 to €22,920
  • New Residential Zoned Land Tax; Residential development stamp duty refund scheme is being extended to the end of 2025 
  • 9% VAT rate on hospitality will continue until 28 February 2023 and go to 13.5% after that 
  • VAT on newspapers reducing to 0% from 1 January 2023; 0% VAT will apply to hormone replacement and nicotine replacement therapies 
  • €2bn going into Rainy Day fund this year and €4bn in 2023 
  • €439m will be provided for the ongoing response to Covid-19 
  • €215m for homelessness services

Paschal Donohoe announces Budget 2023.
Paschal Donohoe announces Budget 2023.

Cost of living measures - at a glance 

  • A €121m scheme will cut childcare costs by up to 25% for families from next year, the National Childcare Scheme hourly subsidy is to increase from 50c to €1.40
  • All social welfare payments will increase by €12 a week. A lump sum of €400 will be made before Christmas to those who qualify for fuel allowance payments.
  • Lump sum cost of living double social welfare payment in October, Christmas bonus confirmed 
  • €500 lump some on working family payment, Double child benefit payment in November
  • €500 payment for carers and those with a disability in November, €200 on the living alone allowance 
  • €600 electricity credit for all households. First payment before Christmas and two in the new year 
  • College students will see a once-off €1,000 reduction in the student contribution fee for higher education students eligible for the free fees initiative.
  • A new tax credit for renters of €500 a year confirmed. Pre-letting expenses for landlords doubled to €10,000 and the time a property must be vacant reduced from 12 to six months.
  • Temporary Business Energy Support Scheme (TBESS) to be introduced and will give back 40% of increased cost of electricity bill. A monthly cap of €10,000 will apply. It will be calculated by comparing average unit prices from 2021 to 2022
  •  20% off public transport for all, 50% on youth travel card
  • €100m for schools to deal with energy costs, €10m for third-level institutes, €60m to local authorities, €110m to health-funded bodies

Speaking this afternoon, Finance Minister Paschal Donohoe told the Dáil that while the country emerged from the Covid-19 pandemic last year, it is now facing a further economic challenge.

Mr Donohoe pledged that the multi-billion euro package will help families, individuals and businesses.

The pressure has been on the coalition government for months to get the balance right as bills for energy, fuel, groceries and housing soar.

Mr Donohoe said that pensioners have to spend more to heat their homes, families are facing higher grocery bills while businesses are trying to cope with energy costs as a result of the energy crisis.

He also said that in drafting the Budget, the government has a responsibility to “strike a delicate balance” between helping with the cost of living pressures, but also “not making them worse by adding fuel to the inflationary fire”.

“For future years, we will aim to stay within the parameters of the medium-term budgetary strategy set out last year,” Mr Donohoe added.

This will allow us to provide for steady improvements in public services and sustainable reductions in personal taxation while still ensuring that our public finances remain on a positive trajectory.” 

Mr Donohoe warned major challenges are coming in the form of an ageing population, the digital transition and climate change, so therefore it is “imperative” that the Government prepare public finances appropriately.

The Finance Minister concluded his speech on an “optimistic note” saying that despite the challenges facing the country he was “confident” that individuals, families and businesses will continue to be supported.

“We know we have many risks,” Paschal Donohoe said. “Recent years have shown how quickly they can develop.

“And I know we need to do more, build more homes, continue to improve public services, respond with courage and resolution to our defining challenge of climate change, but we can and we will.” 

As he commended Budget 2023 to the Dáil, Mr Donohoe said many are looking at this budget today “for confidence, for help”.

“We can and we should be confident about our future. We know our citizens need help, we know our employers need help and this budget aims to give this help,” he added.

Here are some of the measures announced in Budget 2023:

WELFARE 

Picture: Denis Minihane.
Picture: Denis Minihane.

The Government has increased all social welfare payments to increase by €12 a week and has announced a number of once-off and targeted supports under a €1bn social protection package.

Mr McGrath has told the Dáil that a single pensioner, living alone, in receipt of fuel allowance will receive an extra €2,375 between now and the end of 2023 as a result of the announcements contained in the Budget.

He said a lump sum of €400 will be made before Christmas to those who qualify for fuel allowance payments.

He said the fuel allowance is a "very effective means" of targeting support to people who need help with energy bills and so from January the qualifying threshold for the payment will increase from €120 to €200 above the relevant rate of the State Pension Contributory.

He said for those over the age of 70, the weekly means limit will increase to €500 for a single person and €1,000 for couples.

For families, a double child benefit payment will be rolled out in November at a cost of €170m.

Mr McGrath said the Working Family Payment will be increased by €40 a week in recognition of the pressures on low-income households.

A once-off payment of €500 will also be given to people in receipt of the Working Family Payment.

Mr McGrath told the Dáil that "taken together" the measures "represent very substantial State support for the most vulnerable".

CHILDCARE 

A €121m scheme will cut childcare costs by up to 25% for families from next year.

Mr McGrath said childcare is a "basic necessity" for tens of thousands of families across the country and this cost is too expensive at a time of rising household bills.

Announcing the funding, he said the measure will put up to €175 a month or €2,106 a year, back into the pockets of parents next year.

On top of this funding, which will go directly towards bringing down creche fees, Mr McGrath has allocated an extra €59m in core funding to childcare providers to increase capacity in the sector as well as improve pay and conditions for workers.

"In 2023, the childcare budget will reach €1bn - five years ahead of target," Mr McGrath told the Dáil. 

HOUSING 

Picture: Denis Minihane.
Picture: Denis Minihane.

A new tax credit of €500 per annum for renters in the private rented sector is being introduced for those who are not in receipt of any other State housing support.

Only one credit may be claimed per person per year, however, it is proposed that the value of the credit will be doubled in the case of married couples and civil partners.

The permanent cost of this measure, renters tax credit, is estimated at €200 million per annum.

There will also be an extension of Help to Buy scheme to December 31, 2024.

Extensions of the Living City Initiative to December 31, 2027 - acceleration of relief for owner-occupiers so that it can be claimed as a deduction from total income of 15% of the total eligible expenditure in each of the first six years and 10% for the seventh year and carry forward of relief for owner-occupiers.

For landlords, the Government has agreed in Budget 2023 to increase the eligible expenditure limit for pre-letting expenses for landlords to €10,000 and halve the vacancy period to six months.

It had been mooted in recent weeks but landlords will not see the tax they pay on rental income reduced as part of the budget.

Also, a vacant homes tax will be introduced in 2023. The tax will apply to residential properties which are occupied for less than 30 days in a 12-month period.

There will also be an extension of Residential Development Stamp Duty Refund Scheme to end-2025.

A new levy of 10% on certain concrete products at point of first supply.

INCOME TAX

A tax package of over €1.1bn has been announced.

Mr Donohoe announced a €3,200 increase in the income tax standard rate cut-off point for all earners, from €36,800 to €40,000 for single individuals and from €45,800 to €49,000 for married couples and civil partners.

Mr Donohoe has also indicated that a third rate of income tax is set to be introduced as part of Budget 2024 as had been suggested by Fine Gael.

"Were the Government to opt for the introduction of a third rate of income tax, it would require considerable changes to the systems in both the Revenue Commissioners and payroll providers, changes that will need significant lead-time to implement. We are advised that this could be done for January 2024."

Meanwhile, the main tax credits - personal, employee and earned income credit - will increase by €75.

The Home Carer Tax Credit will also increase by €100 to support stay-at-home parents.

Mr Donohoe has also increased the 2% USC band ceiling from €21,295 to €22,920. He also announced that the reduced rate of USC concession for medical card holders is being extended for another year.

Mr Donohoe said one of his "core objectives" is to ensure that workers "do not find themselves in a position where they pay more income tax solely because of inflation.

"There are so many people who work hard, but whose earnings push them outside of access to social welfare benefits. We need to help them too, we need to put money back into their pocket," Mr Donohoe told the Dáil.

CARBON TAX

Picture Denis Minihane.
Picture Denis Minihane.

Carbon taxes will increase again on October 12 but Mr Donohoe introduced a number of offsets to prevent the cost of a litre of fuel at the pumps from going up.

The rate per tonne of carbon dioxide emitted for petrol and diesel will go up from €41 to €48.50 per tonne as set out in the Finance Act 2020.

This will mean that there will be an increase of just over two cent VAT inclusive per litre of petrol and diesel.

However, he said the Government is proposing to offset this carbon tax hike with a reduction to zero of the National Oil Reserve Agency (NORA) levy which amounts to 2c per litre.

EXCISE AND VAT

Picture: iStock
Picture: iStock

A 50c hike has been placed on the packet of 20 cigarettes under Budget 2023.

However, there will be no increase in excise on alcohol.

To support cider producers, the Government is granting up to 50% excise relief to independent small producers of cider and pear cider, also known as 'perry'.

Mr Donohoe said the current excise reduction of 21c per litre on petrol and 16c per litre on diesel will be extended.

However, the carbon taxes on petrol and diesel will increase from €41 per tonne to €48.50 per tonne from October 12.

This will mean an increase of over 2c per litre on petrol and diesel.

But Mr Donohoe said the Government will offset this carbon tax increase with a reduction to zero of the National Oil Reserves Agency (NORA) levy.

Mr Donohoe said the Government is committed to supporting the nighttime economy, "not just our hospitality sector, but also the many musicians, venues, event operators and organisers who are integral to creating a vibrant cultural life".

He announced a cut from €110 to €55 in the cost of applying for a Special Exemption Order, which late-night venues require to operate.

The VAT rate on newspapers will be slashed to 0% from 9% and will apply to digital editions of these publications. This change will come into place from January 1, 2023.

A zero rate can now be applied to Automatic External Defibrillators and a small number of period products currently at 9%.

A zero rate of VAT will be applied to non-oral Hormone Replacement Therapy medicine - the change will come in from January.

A zero VAT rate will also be applied to non-oral nicotine replacement therapy medicine from January.

Flat rate compensation percentage for farmers reduced from 5.5% to 5.0%.

TRANSPORT 

Picture: Denis Minihane.
Picture: Denis Minihane.

"Investment in transport infrastructure, reduced fares for commuters and electric vehicle grants will help meet ambitious climate targets," the Dáil has heard.

Announcing the transport allocation for next year, Mr McGrath said €2.6bn would be pumped into progressing BusConnects, MetroLink and the Dart+ programme.

The 20% reduction in public transport fares will be retained next year to encourage people to use buses and trains and also reduce carbon emissions.

The N22 Ballyvourney to Macroom upgrade scheme, the Dunkettle interchange upgrade as well as the Shannon Crossing/Killaloe bypass scheme will be funded under the roads allocation.

There will be additional funding for electric vehicle charging points and other infrastructure, which will come from the Shared Island Fund.

The rail network will get 41 extra train carriages and 91 new double-decker buses will be bought as well as 30 single-deck electric vehicles.

EDUCATION

Picture: Larry Cummins
Picture: Larry Cummins

All primary school children will receive free schoolbooks from next September as part of Budget 2023.

Class sizes will also be reduced at primary school level which will require 370 more teachers.

An additional 296 post-primary teachers will be recruited to meet demographic pressures, but the ratio will not change. Overall, €9.6bn has been allocated to the Department of Education.

This includes a capital budget of €860m, which will go towards 300 building projects that are currently under construction.

On top of this, 150 school building projects that are at advanced design or tender stage will begin next year.

Mr McGrath said these projects will have a strong focus on delivering special classes, particularly at second level.

"This Government has prioritised special education. The last three budgets have delivered 3,300 additional SNAs and over 2,000 extra special education teachers.

"Today's Budget allows for 686 additional teachers to support those with special educational needs," Mr McGrath told the Dáil.

There will be a continuation of the Enhanced Summer Programme for a further year to mitigate against the impact of learning losses as a result of the Covid pandemic.

HIGHER EDUCATION

Public Expenditure Minister Michael McGrath confirmed that college students will see a once-off €1,000 reduction in the student contribution fee for higher education students eligible for the free fees initiative.

They will also see a once-off reduction of up to 33% in the contribution fee for apprentices.

There is also a once-off extra payment for all student maintenance grant recipients; a once-off increase of €1,000 in the support to SUSI qualified Post Graduate students, increasing from €3500 to €4,500;

There is a further €8m investment in the Student Assistance Fund for the 2022/23 academic year.

Mr McGrath announced a reduction of €500 in the contribution fee for eligible grant applicants earning between €62,000 and €100,000.

The threshold for the student contribution 50% grant (€1,500) has been expanded to €62,000. Student maintenance grants will increase from January.

He also announced a permanent increase in the support for Post Graduate fees under SUSI by €500 from €3,500 to €4,000 from September 2023.

There will be €30m in funding to increase capacity for apprenticeship in 2023, and additional funding for social inclusion measures in apprenticeship, such as a bursary for apprentices from under-represented groups.

There is also additional funding for small and medium enterprises to adjust to the challenges of Brexit, digital transformation and climate challenges.

FARMING 

Mr Donohoe told the Dáil a number of important agriculture reliefs due to expire at the end of this year provide “important” supports to young farmers.

He announced the extension of the five agriculture tax reliefs due to expiring: The Young Trained Farmer and Farm Consolidation Stamp Duty Reliefs, the Farm Restructuring CGT Relief and the Young Trained Farmer and Registered Farm Partnership Stock Reliefs.

He said the duration of these extensions are dependent on the outcome of negotiations at European level on the agricultural block exemption regulation.

He also announced a time-limited scheme of accelerated capital allowances for farmers for the construction of modern slurry storage facilities to assist the sector adopting “environmentally positive farming practices”.

JUSTICE 

Picture: iStock
Picture: iStock

Additional current funding of €148m is being allocated to the Justice sector in 2023 to fund a number of measures including €18.4m of which will fund the full costs of garda members and staff recruitment in 2022 and the recruitment of up to 1,000 new trainee gardaí and 430 new garda civilian staff next year.

There will be €16m to support the increased demand faced by the International Protection Office and €1m for the continued investment in the establishment of the Gambling Regulatory Authority.

There will be €9m in additional investment to address service demands to victims of domestic, sexual and gender-based violence.

Also announced: €2.5m under the Youth Justice Strategy; additional €9.9m for the Irish prisons service and the courts service will receive €12.5m of additional in 2023 including over €2.5m to progress the ongoing Courts Modernisation programme.

Funding will also be provided to enhance operational functions including the provision of upgraded ballistic vests, enhancing network functionality to support body-worn cameras, a further deployment of approx 3,000 policing mobile devices and additional equipment for a range of garda specialist units.

A programme to provide for increases in staffing across a range of functions including the Prison Services Escort Corp to reflect increases in prisoner numbers and support work training and rehab services.

There will be increased funding for measures and supports relevant to Domestic and Gender-Based Violence, including funding to address acute service delivery demands.

The budget allocation for justice will assign additional resources to the International Protection Office to assist with the response to a significant increase in applications for International Protection.

It will allocate additional funding to the Legal Aid Board to provide legal support to individuals.

There will be €9.2m to support the department of justice response to the Ukrainian crisis and costs associated with additional resources required to meet this requirement in 2023.

And €3m will be provided for additional staffing including two additional data protection commissioners in 2023.

FOREIGN AFFAIRS

Picture: Daragh Mc Sweeney/Provision
Picture: Daragh Mc Sweeney/Provision

Mr McGrath has allotted an additional €116 million to the Department of Foreign Affairs to primarily improve the much-criticised passport service, which experienced significant delays in the aftermath of Covid-19 lockdowns.

He has also increased funding by €177m to the Official Development Assistance in aid assistance, bringing its total budget to €1.2bn.

There is also an additional €100m for Irish Aid, representing a 17% increase on last year, but remains well short of the 0.7% of GDP target which Ireland has signed up to.

Mr McGrath also spoke of a commitment to helping those from Ukraine saying there is €75m will be provided to respond to the humanitarian situation within Ukraine.

He has also allocated a further €30m to help African and other countries in need who are affected by the food crisis caused by the invasion of Ukraine.

DEFENCE 

Mr McGrath announced a €67m increase in the budget for the Defence Forces bringing the total budget for 2023 to €1.174bn.

The overall funding for Defence is due to reach €1.8bn by 2028, in line with the recent Commission on the Future of the Defence Forces report recommendation Level 2.

Of the new money, €35m will go on additional capital and operations projects and will allow for significant investment in equipment such as a primary radar system, upgrading of existing equipment and the modernisation of existing defence bases.

A further €22m will go on “additional current expenditure to meet increased operational and standing costs of the Defence Forces”.

There is also an additional €10m to allow for the additional pension payments for those members of the Defence Forces expected to retire in 2023.

Defence Minister Simon Coveney told Cabinet that the commitment of more money means total defence spending of more than €8bn between now and the end of 2028. It represents the largest investment in defence in the history of the state.

The Minister also asked the government to approve the payment of the military service allowances (msa) to the rank of all private 3 star/able seaman personnel.

Removal of the requirement for a private 3 star/able seaman to mark time for the first three years so they will now get increments each year, they presently don’t get increases until year four.

The Defence Forces will also be allowed to enhance the sea going service commitment scheme. 

The move to LOA2 will require an additional 2,000 personnel (civil and military) over and above the current establishment of 9,500. Work has already commenced on this.

CORPORATION TAX 

File photo: iStock
File photo: iStock

The Government is to put €6bn of corporation taxes into a rainy day fund this year and next.

The Finance Minister has said while corporation tax receipts are "extremely welcome", he told the Dáil that "they cannot be depended upon to fund permanent expenditure".

"To do so, would be to repeat the mistakes of the years leading up to the global financial crisis."

As a result, Mr Donohoe has announced that the Government will start replenishing the National Reserve Fund with these excess corporation tax receipts in order to "build up our economic resilience".

This year €2bn will be directed into the fund, while €4bn will be deposited in 2023.

The Minister said just 500,000 workers and 10 multinational companies currently account for one-third of our total tax revenue.

Mr Donohoe said the move would ensure that the State does not fund permanent expenditure with what is an unstable source of income. 

He added that it would supply the exchequer with "additional firepower" to respond to challenges in the coming years.

ENTERPRISE AND TRADE 

Picture: Pexels
Picture: Pexels

Details of two principle schemes were announced to help businesses with the cost of electricity and gas.

The first is a €200m scheme administered by Enterprise Ireland for larger firms that are involved in exporting and manufacturing.

Under one of its strands, businesses can receive up to €2m in financial aid. They will have to produce a business plan that shows how they will get through the crisis and control their energy costs.

The second scheme is targeted at SMEs. TBESS – Temporary Business Energy Support Scheme, will cover 40% of the increase in electricity or gas bills, up to a maximum of €10,000 per month per business.

It will be administered by the Revenue Commissioners, will be backdated to September, run at least to February and is estimated to cost around €1bn.

This plan will be based on comparison with 2021 bills, a percentage of the increase will then be paid out.

These two measures will also be backed up by a new low-cost loan similar to the Brexit and Covid loans.

In addition to the €1bn schemes announced by Mr Donohoe for businesses struggling with energy costs, Mr McGrath announced a €940m budget for the Department of Enterprise to help companies through the Ukraine crisis and to cope with the impact of Brexit.

ADDITIONAL TAXATION MEASURES 

New Defective Concrete Products Levy 

Following a Government decision in November 2021 that a levy intended to contribute towards the substantial cost of the Mica Redress Scheme should be imposed on the construction sector, targeted to raise €80m per annum over the scheme’s lifetime.

A new levy applying at the rate of 10% at the point of first supply in the State, will be applied to certain concrete products which fall within one of 18 harmonised EU Standards, which gave been identified as meeting certain criteria.

It will also apply to ready-to-pour - also known as ready mix - concrete.

Extensions of the bank levy 

This levy, which was due to expire in 2021, was extended in last year’s Budget to the end of 2022, it is being extended to the end of 2023.

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