Donohoe: 'Difficult' to say if people will be better off as a result of budget measures

Paschal Donohoe: 'Last year, we expected and justifiably so that we would have a level of inflation for this year that would approximately be 2%. Last week, it was 9%'
Donohoe: 'Difficult' to say if people will be better off as a result of budget measures

Mr Donohoe indicated that income tax bands will be changed to ensure that if workers receive a pay increase this will not be eaten up by entering the higher rate of tax.

Finance Minister Paschal Donohoe cannot promise that people will be better off after budget measures are introduced given the uncertainty around inflation.

It comes as the Government announced that it will unveil a separate package of special one-off cost of living supports on budget day, which has been brought forward to September 27.

Mr Donohoe indicated that income tax bands will be changed to ensure that if workers receive a pay increase this will not be eaten up by entering the higher rate of tax. He also cited pensioners and others in receipt of social welfare payments who are now struggling as a result of inflation.

But Mr Donohoe said it would be "genuinely difficult" to say if people will be better off as a result of the budget measures or whether the supports will simply help households stand still.

"When we put together our plans for the economy last year, we expected and justifiably so that we would have a level of inflation for this year that would approximately be 2%. As you're aware, last week, it was confirmed at 9%, so I would be very very wary of making predictions regarding what 2023 will hold what will be the conditions that our workers [and] our businesses may confront."

 The Government published the Summer Economic Statement on Monday. Picture: Sasko Lazarov / RollingNews.ie
The Government published the Summer Economic Statement on Monday. Picture: Sasko Lazarov / RollingNews.ie

However, he said: "There's two things that we're working to deliver. The first one is we want to put the decisions and plans in place that help our economy to continue to grow next year because that's vital for the protection of jobs. 

"And then the second thing that we will do is we will make the best use possible of the additional resources we announced yesterday to give as much help as we can."

Meanwhile, Tánaiste Leo Varadkar has warned that any support measures in the budget will have to be targeted to ensure that “we don’t make the situation worse”.

“We don’t want to get into an inflationary spiral” he told Newstalk’s Pat Kenny Show. The budget will be able to introduce some immediate measures with others to come in January as this was a dynamic situation, he explained.

Every inflation crisis was different, in this situation the amount of money leaving the country was of concern, he said. Large sums were being “sucked out” to pay for oil and gas and the rise in interest rates also meant that more money was being taken out of the economy, he warned.

As the situation changed, the Government needed to respond to it, which was why the 5% rule was being overruled so that the vulnerable could be supported.

“We have to respond to the dynamic situation just like we did with Brexit and the pandemic.” 

Mr Varadkar pointed out that one in four tax takes come from mostly large companies which was proof that low taxes bring in revenue. However, some of the money generated through Corporate Tax would have to be put aside, but only if there was a surplus. It did not make sense to put money away if the country needed to borrow money.

In response to criticism from the Opposition about how the cake was being divided up, Mr Varadkar said there was never any discussion about how the cake was baked “it’s all about how to divide it.” 

On Monday, the Government published the Summer Economic Statement, warning that with public debt high and the advent of higher interest rates, “difficult choices will have to be made”.

The statement, published by Mr Paschal Donohoe and Public Expenditure Minister Michael McGrath, says Budget 2023 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”.

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