LAST UPDATE | 2 Sep 2022
THE EXCHEQUER HAS recorded a surplus of €6.3 billion ahead of this month’s planned Budget.
This compares to a deficit of €6.7 billion recorded to end-August 2021, an improvement of €13 billion.
A statement from the Department of Finance stated that the “increase reflects strong growth in tax revenues and a decline in voted current expenditure due to the unwinding of Covid-19 supports”.
On a 12-month rolling basis, a better indicator of the trend, the Exchequer surplus stands at €5.6 billion.
Tax revenue to end-August stood at €49.8 billion, which was €10.4 billion or 26.3 per cent ahead of the same period last year. The increase is driven by strong growth in income tax, VAT and in particular, corporation tax.
Finance Minister Paschal Donohoe has said that he recognises the “huge anxiety and concern” currently felt by people over rising energy prices.
The Minister said the Government will introduce measures in the Budget later this month that “will help and can help”, adding that they will be confirmed in the coming weeks.
It comes after Electric Ireland yesterday announced its third price hike in five months, which will see its customer’s residential electricity bills increase by 26.7% and their gas bills rise by 37.5% from 1 October.
Speaking on RTÉ’s Morning Ireland, Donohoe said: “I want to recognise the huge anxiety and concern that many feel at the moment regarding later on in the year.
“I’m very conscious that as I talk to you on 2 September, it’s still a bright long day, and as we move through the year, the days will shorten and they’ll be less bright, and it’ll be happening at a time also, in which we will see bills go up,” he said.
“We’re still three weeks away from the Budget. What I will be able to do, I can’t say now, is that we will be able to help and how we will help and what we will do will be confirmed in the coming weeks as we get ready for Budget 2023.”
He said the main reason the Budget was brought forward to this month is “in anticipation of this moment”, adding that Government “will help and can help” tackle rising energy costs.
Donohoe said the Government will consider a windfall tax on energy providers, but could not comment on taxation matters before the Budget.
He added that he understands that for those on lower incomes, “higher prices hurt them more”.
What we will need to do, which we did earlier on in the year and we will continue to do, is look at a mix of measures that are capable of helping, of making a real difference, and are also affordable for the country.
On businesses, Donohoe said that it is “unconscionable and wrong” that businesses may be worried about going out of business when others businesses are experiencing a surge in profitability.
“That’s wrong. We need to consider at national and European level how we respond to that,” he said.
He also said that he has been “very, very careful” that as corporation tax revenue has increased, it has not translated “into changing my spending plans over the last number of years”.
“This is the very reason why the increase in corporate taxes receipts that we have is now delivering a budget surplus for us,” he said.
“This isn’t a doctrine. What this is about is ensuring that the Government and I as Minister for Finance, don’t make decisions today that could create really big problems for us tomorrow.”
43% ‘could be in energy poverty’
Senior research officer at the Economic and Social Research Institute (ESRI) Niall Farrell told Morning Ireland that around 43% could now be in energy poverty due to rising costs.
Earlier this year, a report by the ESRI estimated that 29% of households were in energy poverty due to energy inflation.
The previous highest recorded rate was in 1994 and 1995, when 23% of households were in energy poverty.
A person who spends more than 10% of their net income to heat or power their home is defined as being in energy poverty.
Speaking on the programme, Farrell said that the ESRI now estimates this figure to be around 43%.
“A few months ago, the figure that we came up with was around 29% of households spend more than 10% of their income on energy services. With that piece of research, we analysed what would happen if costs went up by another 25%,” he said.
“These recent changes in prices are sort of in that ballpark, and that would suggest that maybe about 43% of households are in energy poverty. So that’s quite a substantial amount where energy is quite a burden.”
Farrell said a “variety of measures” is needed to help alleviate the pressure of energy costs for households.
“You could have changes to taxes on fuels, you could change maybe lump sum transfers to households, or changes to the welfare system. The latter are perhaps best targeted at those who are most vulnerable, so if for every euro spent on these measures, you get the best outcome in terms of alleviation of the most negative effects of energy poverty,” he said.
He added that making changes to the welfare system would “perhaps cover this period of extraordinary prices”.
EU energy ministers are set to hold urgent talks in Brussels on 9 September to discuss measures to tackle the energy crisis and reform the European energy market.
Economy growth
Meanwhile, figures released by the Central Statistics Office (CSO) show that Ireland’s domestic economy grew by 4.3% in the second quarter of the year.
It now stands at 9% above the pre-pandemic level recorded in the fourth quarter of 2019.
The figures also show that GDP grew by 11% on an annual basis, while Gross National Product (GNP) – a measure of economic activity that excludes the profits of multinationals – increased by 2.1%.
The construction sector expanded by 2.7% in the second quarter, while an increase of 1.5% was recorded in the distribution, transport, hotels and restaurants sectors.
However, a decline of 0.3% was seen in the professional, administrative and support activities. Further declines were recorded in the finance and insurance, and agriculture, forestry and fishing industries of0.4% and 0.3%, respectively.
In a statement, Minister Donohoe said the figures confirm “that the domestic economy rebounded strongly as Covid restrictions were finally removed”.
“This is the first quarter in which consumers were uninhibited by pandemic related restrictions and it is encouraging to see the rebound in activity, with consumer spending growing 1.8% over the quarter,” he said.
“Indeed consumer spending essentially returned to pre-pandemic levels in the second quarter, a very notable outcome.”
He said he was “heartened” to see that private sector investment in the domestic economy remains strong, despite mounting geopolitical uncertainty.
“In particular, I note the strong growth in machinery and equipment investment, up 30% over the quarter, a vote of confidence in the Irish economy by the private sector. Housing investment remains strong though, of course, much remains to be done.”
Donohoe also noted that the outlook over the coming quarters has weakened considerably. “Global inflationary pressures, resulting from the surge in energy prices from Putin’s war, are eroding real incomes and undermining growth prospects both domestically and in our main trading partners,” he said.
“The Government is committed to tackling the cost of living challenges head on and the forthcoming Budget will set out a range of supports to help alleviate the inflationary pressures on society.
“In doing so we must strike a balance between protecting the most vulnerable households and firms from a once-in-a-generation energy price shock, while at the same time ensuring that policy doesn’t worsen the inflationary cycle.”
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