WE ARE A couple of days out from this year’s Budget, and Finance Minister Paschal Donohoe has his work cut out for him.
The government is now predicting a deficit of €21 billion or 6% of national income for this year.
For last year’s Budget, the minister played down any expectations of giveaways, telling all around him that he will be “safe” and “cautious” due to the possibility of a no-deal Brexit on the 2020 horizon.
One year on, Donohoe has to contemplate that exact same scenario, but he also has the added pressure of a pandemic.
In the days before the 2019 Budget, all the talk surrounded the deadlock over the Irish backstop. On Tuesday, when Budget 2021 will be announced, Donohoe has to get the balance right between the country’s long-term financial standing and providing the necessary supports for those out of work because of Covid-19 restrictions.
At the beginning of this month, Ireland recorded an exchequer deficit of almost €9.4 billion in the year to the end of September.
The total revealed by the Department of Finance compares with a €38 million surplus in the same period last year.
It is a “very, very big deficit”, Donohoe has said.
So what can you expect?
The budget will include details of a major recovery fund to deal with the ongoing impact of Covid-19. The government is also working off the assumption that there will be a no-deal Brexit and that a vaccine for Covid-19 will not be available next year.
In line with the programme for government, priorities in Budget 2021 – outside that of Brexit and Covid-19 – will be health, housing and climate change.
Government is expecting to spend up to €9 billion on expenditure related to Covid-19 next year.
Public Expenditure Minister Michael McGrath brought a memo on expenditure strategy to Cabinet ahead of Budget 2021 last week.
Around €900 million will be spent in order to meet existing services across all areas. This is in addition to €1 billion which is ear-marked in pre-committed current expenditure and an increase in €1 billion on capital expenditure next year.
The government also raided the Rainy Day Fund. It was designed to be used for emergencies. Using that framework, it was decided not to use it for Brexit or housing last year, so the fact it has been emptied this year says a lot about where we’re at.
Income tax
There will be no increase in income tax in the 2021 Budget, Donohoe has said.
“Our personal tax receipts are holding up quite well, and in terms of what that says about our economy, it does indicate to me that momentum is building in our economy,” he added.
“In terms of the budget 2021, September is always a significant month in terms of tax receipts and it’s the final piece in the jigsaw before we make a call about what our tax collection will be for the year and the following year’s budget,” the minister said last month.
The programme for government also commits to no increase in the Universal Social Charge (USC) – although there might be some tweaks to bands.
In terms of VAT, the hospitality sector has been calling for further cuts in light of the pandemic. The government steered away from it it in recent years, but significant pressure has been placed on representatives that it might just get get the green light.
Social welfare
There has been unprecedented spending by Government on health and social welfare as a result of the pandemic, and there should be other big announcements made on Tuesday.
There have been calls to restore the Pandemic Unemployment Payment to its initial level of €350 per week – but government seems adamant that to do so would impede on the extended time period the payment is due to last for.
There are likely to be changes and tweaks to the scheme, perhaps on a sector-by-sector basis, with additional supports for those working in areas that have been impacted the most.
The Taoiseach told TheJournal.ie that some workers might be able to take up jobs, while also retaining their payment.
Pressure has been mounting on government to help a number of people in areas such as hospitality, tourism, entertainment and the arts.
Publicans, bar workers, DJs, comedians, actors, cinemas, event organisers, taxi drivers, and those in the gig economy have all be calling for additional supports after their businesses were mandated to shut up shop.
The Taoiseach said “creative” thinking has been going on behind the scenes to figure out how to support such workers, particularly through the welfare system.
However, a supports package worth millions for live gigs and the music industry is expected to form part of the Budget.
In terms of the State pension, a €5 increase has almost become customary, but this year it might not see the bump.
No decision has been made at this point on the Christmas bonus, with McGrath saying that at this point in time the exchequer is in a very strained position. Its cancellation though would be a tricky manoeuvre for government.
The Employment Wage Subsidy Scheme (EWSS) will be extended beyond 31 March, 2021 – its current scheduled end date.
There will be no wealth tax, Donohoe has also said.
Green initiatives
Carbon tax increased by six euro per tonne last year, so there will be another increase again on Tuesday.
Donohoe said it will be ring-fenced to protect those at risk of fuel poverty. He also said that funds will go towards making progress on retrofitting homes for energy efficiency.
All eyes will be on petrol and diesel prices next week, with businesses likely to be unhappy with the additional costs while struggling to stay above water.
The Government will spend €1 million a day on improving cycling and walking infrastructure, and in terms of electric vehicles, there will be commitments to ramping up the roll out of charge points.
Keep an eye out for grants in renewable energy and retrofit schemes also.
Housing
Housing Minister Darragh O’Brien is keen to extend Ireland’s Help to Buy scheme, which gives a tax rebate of up to €30,000 to first-time buyers. Social housing will also be part of a key budget announcements next week.
An affordable housing scheme was meant to be launched last month, so there could well be news of this on Tuesday – perhaps the good news story of the day.
Brexit
Government also has to plan for the worst, so it is likely that there will be significant resources allocated to those sectors set to be hit hardest by a no deal.
While the July Stimulus rolled out loan and grant schemes, it is likely that further announcements will be made on similar items.
Booze and Cigs
With government literally looking down the back of the couch for any spare pennies, it is almost a certainty cigarettes are set to rise next week. Some question marks however remain over whether there will be a hike in alcohol given the precarious position publicans have been put in over the last few months.
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