'Difficult choices will have to be made': Budget 2023 to include 6.5% spending boost

The publication of the Summer Economic Statement says the response to the cost of living crisis must be different to the pandemic with “significant fiscal challenges now firmly on the horizon”

The statement, published today by Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath says Budget 2023 will provide for an overall package of €6.7 billion.

The response to the cost of living crisis must be different to the pandemic with “significant fiscal challenges now firmly on the horizon” the Government has warned as it announced a €6.7 billion (bn) additional spending package for the Budget.

The publication of the Summer Economic Statement warns, however, that with public debt high and the advent of higher interest rates, “difficult choices will have to be made”.

The statement, published today by Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath, says Budget 2023 – which will be held two weeks earlier than planned on September 27 – will provide for an overall package of €6.7bn. 

This, the Government says, “has been calibrated to balance the need to provide further support with the need to avoid adding to inflationary pressures”.

Buoyed by additional tax takes, the Government has added €2.2bn to planned Budget measures for 2023, with €6.7bn now available. Additional public spending will amount to €5.65bn and tax-related measures such as extending the cut to excise on fuel will come to €1.05bn.

The statement says that Ireland will deviate from planned rules which would have limited Budget spending to 5% growth per annum. This has been revised upwards to 6.5% to, in the words of the document, “protect public services”.

Additional public spending will amount to €5.65bn and tax-related measures such as extending the cut to excise on fuel will come to €1.05bn.

“Government is providing for core spending of €85.8bn next year. This ceiling will provide for an expenditure budgetary package of €5.65bn over 2022 and 2023. This is an increase of €1.7bn relative to what was originally provided for, and will ensure that support is provided to households to help with the higher cost of living.

“This means that core spending will increase by 6.5% next year (compared with the 5% originally foreseen).” 

The document adds that €4.5bn will be spent on temporary measures such as the response to the Ukrainian refugee crisis and Covid-19 spending.

On tax, the Government says that it will aim to ensure that workers who move between tax bands due to cost of living pay increases are not unduly hit with larger tax bills.

“A key objective of taxation policy in the forthcoming budget will be to avoid workers paying additional tax simply because they move through higher tax brackets because of inflation.” 

The near-term fiscal outlook is highly uncertain, the statement adds, saying that the uplift in spending will be less than any upward revision to inflation. 

“Tax revenue has surprised on the upside in the first half of the year, though most of the overshoot is due to additional corporate tax receipts. The economic outlook for the second half of the year has deteriorated relative to earlier expectations, and this could impact on tax revenue over the remainder of the year. While highly uncertain, a very modest surplus is possible for this year and next; however, this would only arise because of the strength of corporation tax receipts.”