Donohoe dampens down on talk of giveaway budget, saying Government will be 'careful'

Public Expenditure Minister Paschal Donohoe said the Government needed to be cautious regarding the surplus due to the nature of corporate tax receipts, which may be reduced in the years ahead. Picture: Leah Farrell / RollingNews.ie

Public Expenditure Minister Paschal Donohoe has said he believes the Government should be cautious in the upcoming budget, after warnings from the Central Bank against a giveaway budget this October.

A report from the Central Bank cautioned against a giveaway budget this October, saying there may be a requirement for tax increases and that the Government should stay within the 5% spending limit.

In particular, the Quarterly Bulletin says that Government spending or tax cuts beyond the 5% spending limit “would add significantly to demand and inflation” in the years ahead.

It comes months after the Government forecasted a €10bn surplus at the end of this year, which will increase to €16bn at the end of 2024. The majority of this surplus will come from windfall corporation tax receipts.

Speaking to reporters on Wednesday afternoon, Mr Donohoe said the debate on how funds should be allocated was now well under way, in both the public domain and within the Government.

However, he said the Government needed to be cautious regarding the surplus due to the nature of corporate tax receipts, which may be reduced in the years ahead.

“I believe there's a very powerful case for the role of caution with regard to our corporate tax receipts and their spending. So much of our surplus the next year is made out of corporate tax receipts,” Mr Donohoe said.

“If you were to remove the corporate tax receipts from our surplus for next year, we would be left with either no surplus or a small surplus.

I believe it is of great importance that we don't get to the point now of, again, spending money that might not always be available to us in ongoing decisions that you can only reverse at great social and economic costs.”

When asked if the Central Bank’s report would impact on the Government’s plan to further reduce income tax, Mr Donohoe said they were aware of the potential inflationary risk, but that he and Finance Minister Michael McGrath intended to get the balance right.

“What the Central Bank report indicates to us and reminds us of something that we already know is that it's all about the level of spending decisions and taxation decisions that you make and the risk that, if you go beyond a certain level, it can create new problems.”

The Dublin Central TD said he and Mr McGrath were “well aware” of the potential risks that could arise in Budget 2024 and he would continue to argue that Government should be “careful” with money that may not be available in the future.

“We need to be really careful that we don’t spend money that might not always be available to us,” Mr Donohoe said.

Despite Mr Donohoe’s calls for caution, Taoiseach Leo Varadkar said last week that an “overly cautious” approach to the upcoming budget could lead to more people being pushed into poverty.

“If the Government takes an overly cautious approach in dealing with the cost-of-living crisis and the climate crisis, it is making a conscious decision to reduce living standards and to do less. And that’s not something we should stand over given our fiscal position,” Mr Varadkar said, speaking at the National Economic Dialogue last week

Mr Donohoe added that the Government was finalising the upcoming Summer Economic Statement, which is due to set out the parameters for Budget 2024.