SAFE – THAT IS how Finance Minister Paschal Donohoe has described the upcoming Budget in October.
It’s just two weeks out, but don’t get too excited.
The Budget talks underway between Fine Gael, the Independent Alliance and Fianna Fáil are happening to the background of Brexit “mood music” according to one government source, who said no one is making any huge demands on the government this year.
In June, the minister poured cold water over any expectations that this could be a windfall budget.
While keen to publicise that Ireland is now at full employment, the external factors outside of Ireland are going to impact on what you see in your wallet.
Unlike other years, Donohoe had to consider two scenarios when drafting this year’s Budget.
One, in which there is a real possibility of a no-deal Brexit, and the other, in which it is all relatively smooth sailing after the Brexit deadline of 31 October.
Due to the deadlock over the Irish backstop, the minister has decided to err on the side of caution, and opted for Budget option A, in preparation for a possible no-deal Brexit.
So what can you expect?
With fiscal space of some €700 million, it won’t be a giveaway budget. (Don’t know what fiscal space is? Here’s an explainer)
It’s bad news for workers who were hoping to see an increase in their take home pay as it has been well flagged that any tax changes will be either moderate or none.
You can wave goodbye to Leo Varadkar’s promise earlier this year committing to increasing the point at which people pay the top rate of tax to €50,000 for a single person and €100,000 for a double-income couple.
The Taoiseach said at the beginning of the summer that he may have spoken too soon.
The proposal would have raised the threshold by €2,500 each year over the next five years from its current level of €35,300, in the case of a single worker.
But the Taoiseach has suggested in light of Brexit, it is most likely a no go for this Budget.
Carbon tax
One thing you can bet on this year is a rise in carbon tax.
It had been flagged for last year, however, the Taoiseach said he had to choose between a carbon tax and VAT, as to do both would have been a “double whammy”.
This year, it is a certainty that it will rise. While it had initially been mooted to rise by €10, it is understood it will be closer to €5 or €6.
While there has been some debate about whether the money raised will be returned to the household in the form of a cheque (the government maintain this tax is about changing behaviour, rather than increasing revenue), Fianna Fáil has pinned its colours to the mast on this one and said that the funds raised should be ring-fenced to pay for green policies such as home retrofits. This is most likely the option Donohoe will go for.
There is the issue of dealing with fuel poverty, so how the government plans to offset that for struggling families remains to be seen.
Welfare Pensions
The days of the €5 increase for pensioners in the Budget appear to be over, despite Fianna Fáil social protection spokesman Willie O’Dea insisting on the same this year.
Government sources have indicated that the weekly rate will not rise this year, instead opting for extra supports in items such as home benefits, which help pay for household bills.
When asked about a possible rise this week, Fianna Fáil’s Michael McGrath was reluctant to comment stating that Budget talks between Fine Gael and his party are still underway, but he pointed out that Brexit will impact on Budget 2020.
Any changes to social welfare payments will be targeted to those that are most vulnerable, according to Donohoe.
Housing
There has been talk about the modifying of the help-to-buy scheme this year, however, both the Housing Minister Eoghan Murphy and the Taoiseach have spoken very supportively of the scheme in the Dáil before the summer recess.
When asked during the summer if the scheme will be extended into 2020, Murphy did not comment, stating that it is a matter for the Budget negotiations with Finance Minister Paschal Donohoe.
However, Taoiseach Leo Varadkar has hinted in Dáil exchanges that the scheme will continue, stating that it is something that “will help many more people in the future”.
Fianna Fáil are understood to have insisted that it remain in place, with no changes.
Affordable housing is another big item to look out for on 8 October. Both Fianna Fáil and the Independent Alliance are understood to be pushing for some meaningful scheme or programme to be rolled out to help people get their foot on the property ladder.
Government sources have indicated that an SSIA-style savings scheme for first-time-buyers might be on the cards, whereby savings for deposits could be topped up by government. Negotiations on housing issues are set to continue next week, so watch this space.
Sources state that government could make changes to inheritance tax in a bid to help the housing crisis.
A €10,000 increase in the inheritance tax threshold from parents to children was announced last year. Donohoe said at the time that he decided to increase the lifetime Group A tax-free threshold, which broadly applies to transfers between parents and their children, from €310,000 to €320,000. This could increase further in Budget 2020. Capital Acquisitions Tax is a tax on gifts and inheritances.
Brexit
Because this budget is based on the assumption that there will be a no-deal Brexit, you can expect Brexit measures that aim to support the most impacted industries to be prioritised.
We can expect some big-ticket promises and large-scale support packages, as well as more details of how Ireland plans to prepare for the possibility of a no-deal.
What else could we see in October?
Government sources have said there are “no crazy demands” this year, so you can rule out the idea of a granny grant which was floated last year by Shane Ross, whereby grandparents would get an annual payment of €1,000 if they help out with the childcare of their grandchildren.
One topic to keep an eye out for is the mention of the insurance industry. It is understood the Independent Alliance is “cheesed off” insurance companies, and has called for some sort of levy to be applied to the industry. However, this may not feature next month, as it is believed the Department of Public Expenditure and Reform is looking into the idea, to ensure that the cost would not be passed on to the customer.
The government has also been keen to ramp up its climate change efforts this year. With the launch of the government’s Climate Action Plan, expect to see green policy initiatives announced. These will most likely centre on electric vehicles, car charging points, housing retrofit schemes, as well as the possibility of a car scrappage scheme.
Fianna Fáil leader Micheál Martin told TheJournal.ie recently that he has made a number of demands for green policies in this Budget.
Another item that could feature is supports for parents and families – which was one of the themes for this year’s Fine Gael’s think-in this month.
Last year, a new paid parental leave scheme was announced to provide two extra weeks’ leave to every parent of a child in their first year. Varadkar has said he wants this to rise year-on-year.
The Independent Alliance are also seeking something from Donohoe to tackle child poverty, as well as disability services, such as more respite hours.
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