Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

INTRODUCTION

A Cheann Comhairle, the last time I announced a budget in this Chamber, two years ago, none of us could have foreseen that the worst global pandemic in a century awaited. We knew well about the risks associated with Brexit and had prepared for it; we could not have predicted the devastation Covid-19 would leave in its wake. Both events have demonstrated the need for us to always prepare for the worst while striving for the best. Many lives were lost and many livelihoods were ruined. The Covid-19 pandemic was an unprecedented experience for all of us and, unfortunately, life-changing for so many.

It also brought out the very best in Irish society: the bravery, resilience and fortitude of our front-line workers, the commitment of those working in the community and care sectors and the determination of ordinary people across our country to get their loved ones through the pandemic as safely as possible. Our efforts have worked. Our solidarity and our common purpose saved lives and allowed our society and our economy to reopen. Our country now reaches for a better, brighter future. The Minister, Deputy Michael McGrath, and I have worked together with all parties and all colleagues in the Government so that budget 2022 is a path to that future.

COVID-19: GOVERNMENT RESPONSE

The Covid-19 pandemic highlighted the role of the Government in supporting both our economy and our society. While the response from the Government was unparalleled, with over €48 billion provided for over three years, it was also a response that was fully justified. Through the pandemic unemployment payment, PUP, the employment wage subsidy scheme, EWSS, and the Covid restrictions support scheme, CRSS, approximately €17.5 billion has been directed to individuals, families and businesses. Our supports worked. We responded in the right way at the right time. This response was strengthened by the solidarity of the European Union. It could only take place due to the careful management of the economy in the years leading up to the pandemic. We managed our affairs well in better times so we could support at a time of great national difficulty.

We are now entering a new phase where we will recover from the pandemic, restore our public services and living standards and repair our public finances. In framing this budget, the Government has been conscious of the cost of living pressures that are currently confronting so many citizens and businesses. As the recovery increasingly takes hold and as citizens get back to some level of normality, the Government also remains focused on our higher levels of debt, which my Department is forecasting will come in at just under €240 billion next year, with the real risks associated with that. Budget 2022 meets the twin goals of investing in our future and meeting the needs of today, and putting the public finances on a sustainable path.

MACROECONOMIC OUTLOOK

Turning to our domestic forecasts, while the reimposition of Covid-related restrictions during the first quarter of this year led to a further contraction in the domestic economy, the decline in activity was not as severe as that seen during the initial lockdown in spring last year. Due to the success of the vaccination programme, restrictions were eased over the course of the second quarter with the domestic economy recovering strongly as a result. Modified domestic demand, which is the best measure of the domestic economy, grew by almost 8.5% in the second quarter and surpassed the level immediately preceding the pandemic for the first time since the start of the crisis. Having accumulated significant savings during the pandemic, consumer spending is leading the way. At the end of the second quarter, spending was just 3% below pre-pandemic levels. For this year as a whole, modified domestic demand is expected to grow by 5.25% and by 6.5% in 2022.

The strong rebound in domestic economic activity has been accompanied by rising inflationary pressures, with consumer price inflation expected to reach 3.7% in September, which would be the highest rate since June 2008. This recent rise in inflation is partly a result of temporary factors, which are expected to fade over time. This includes the normalisation of oil prices following their collapse in spring last year and the mismatch between demand and supply that has emerged following the reopening of the economy. However, acute supply chain pressures, including shipping capacity, shortages of raw materials, labour shortages in certain sectors as well as rising energy prices, mean that there are further risks to inflation and the cost of living. The Government also continues to be aware of, and prepared for, the risks and consequences of Brexit.

Strong tax receipts throughout the year, particularly VAT and income tax, reflect the positive momentum in the economy. These receipts were built on the back of the Government’s various support schemes over the past year and a half. Without these schemes, tax revenue would have plummeted as jobs would have been threatened and lost.

The jobs outlook has now improved significantly. PUP numbers are now under 100,000 for the first time since the beginning of the pandemic, falling from almost 500,000 since early February.

The sharp fall in PUP recipients and improved labour market conditions have prompted the current Covid-adjusted unemployment rate to fall below 10%, the lowest rate since the onset of the pandemic. By year end the unemployment rate is forecast to be just over 9%. Employment is expected to grow by just under 8% or about 150,000 jobs this year.

Next year, we expect the unemployment rate to fall to about 6.5% by the fourth quarter. This is still higher than we were before the pandemic. Overall employment is expected to grow by just over 13% or 275,000 jobs in 2022.

Overall, more than 400,000 jobs will be added to the economy between this year and next, and employment is expected to reach and exceed its pre-pandemic level during the course of 2022. This performance, by any measure, represents a remarkable rebound in our jobs outlook.

We are recovering. The resilience of the Irish people, sensible fiscal policies before the pandemic and our economic supports during the pandemic are the ingredients in the recovery.

However, this recovery must also deliver more homes, better progress on climate change and help with a cost of living that is rising. The Minister, Deputy Michael McGrath, and I know this; it has led to the important decisions in this budget.

BUDGETARY STANCE

Public spending next year will amount to €87.6 billion. The Government has been steadfast in its commitment to keeping this amount below the line laid out in the summer economic statement. Our medium-term strategy sets out that over the next two budgets we will restore our public services, phase out temporary Covid-related spending and repair our public finances.

This strategy strikes the appropriate balance between tapering supports and investing. In budget 2022 core current expenditure will grow by 4.6%, in line with the trend growth rate of our economy. By 2022, we will only be borrowing for capital spending.

It is worth recalling just how much this has changed and in particular, how we entered the crisis with a budgetary surplus of €2 billion.

In the summer economic statement earlier this year my Department forecast a combined deficit of just over €34.5 billion for 2021 and 2022.

I am revising that forecast to €21.5 billion for both years, a reduction of almost 40%.

This means that our debt as a share of national income is now falling. On this point, it is inappropriate to consider our debt burden in terms of gross domestic product, given the volatility of that measure associated with particular forms of economic activity. It will be more important to reference national income.

As a share of national income, our debt will therefore fall from 106% this year, to 99% next year, reaching 89.5% in 2025.

As such, we are now reducing our overall borrowing for this year and next. However, the amounts involved are still substantial.

The expenditure associated with budget 2022 will bring our overall national debt to just under €240 billion.

That means debt of nearly €50,000 for every man, woman and child in the country. This is not where we want to be when interest rates start to rise again. That is why we need to repair our public finances and put them on this footing.

BUDGET 2022 MEASURES

Today I am announcing a budgetary package of €4.7 billion. This is in line with the summer economic statement and has not been changed as a result of the improved Exchequer performance in recent months. This will be split between expenditure measures worth €4.2 billion and tax measures worth €0.5 billion, including revenue raising measures of approximately €230 million.

The pandemic is still with us. We have therefore made provision for temporary supports to continue in order to provide certainty for those most impacted and flexibility for the public finances, should the situation with the virus deteriorate unexpectedly over the coming year. To this end, a contingency fund amounting to €4 billion will be created.

FUTURE SUPPORTS – EWSS

With regard to the current supports, I have been steadfast in my commitment that there will be no cliff-edge to the EWSS, which has been an extremely successful policy instrument during the most challenging times and has greatly assisted us in maintaining the link between employers and employees. I am pleased to confirm this scheme will remain in place in a graduated form until 30 April 2022, six months after the lifting of most public health restrictions and two months after the PUP ceases.

The following are the broad parameters of the extension. There will be no change to the scheme for the months of October and November. Businesses availing of the EWSS on 31 December 2021 will continue to be supported until 30 April 2022. Across December, January and February, a two-rate structure of €151.50 and €203 will apply. For March and April 2022, the final two months of the scheme, a flat rate subsidy of €100 will be put in place. The reduced rate of employers' PRSI will no longer apply for these two months. The scheme will close to new employers from 1 January next year. These revised arrangements for this crucial scheme strike a balance between helping those businesses that continue to need support and recalibrating the scheme in light of the wider economic recovery.

AVIATION

The aviation sector has paid a particularly heavy price during the pandemic. I am therefore taking the opportunity in the forthcoming finance Bill to amend the taxation arrangements that apply to international air crews under section 127B of the income tax code. This move will support the sector in its recovery.

VAT - HOSPITALITY

The reduced VAT rate of 9% for the hospitality sector will remain in place to the end of August 2022.

REMOTE WORKING

As many have experienced over the past year and a half, remote working can become part of a better work-life balance. Government policy is to facilitate and support remote work and, in this regard, I am announcing an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity and broadband in respect of those incurred while working from home. This will be formalised in legislation through the finance Bill. This will support living standards as the economy starts to recover and will also be kept under review from the perspective of its interaction with the national climate policy position.

INCOME TAX

As prices rise and inflation returns, the Government wants to ease the cost of living pressures that many people are feeling. I am therefore announcing today an income tax package to the value of almost €520 million. This will increase the standard rate band by €1,500 and increase each of the personal tax credit, employee tax credit and earned income credit by €50. These changes will benefit everyone who pays income tax. Along with other measures that will be announced by the Minister, Deputy Michael McGrath, and the Government, they aim to help citizens at a time when prices are rising.

UNIVERSAL SOCIAL CHARGE

The Government also accepts the recommendation of the Low Pay Commission to increase the national minimum wage by 30 cent to €10.50 per hour.

In addition, to ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of the universal social charge, USC, the ceiling of the second USC rate band will be increased from €20,687 to €21,295, a move which will give a benefit to workers whose income is above that amount.

I am also retaining the exemption from the top rate of USC for all medical card holders and those aged over 70 earning less than €60,000.

HOUSING

As everyone in this Chamber will be well aware, a core, if not the core, challenge facing the country over the next number of years is housing.

Recent figures show national property price inflation of just under 9% in July. The rise in prices is due to the imbalance between housing demand and supply, as well as the impact of some of the savings built up over the pandemic being directed into housing.

I appreciate the strain, anxiety and worry caused by the shortage of homes.

This is why the Government is determined to build more homes.

This is why total housing expenditure has more than doubled since 2016 and, as of 2021, it will be more than 40% above the peak level in 2008.

ZONED LAND TAX

The Government’s Housing for All strategy targets delivery of, on average, 33,000 new homes per annum out to 2030.

Housing construction has already rebounded rapidly this year and there were almost 30,000 housing commitments in the 12 months to August.

As part of Housing for All, I will introduce a zoned land tax to encourage the use of land for building homes. The primary objective of this measure is to increase the supply of homes rather than to raise revenue.

The tax will apply to land that is zoned suitable for residential development and is serviced, but has not been developed for housing. It will, therefore, target land in areas that are zoned residential, or are zoned for a mix of uses, including residential. I am not proposing to have any minimum size exclusion as I see the potential of the tax to incentivise the development of small sites in town centres.

In addition, to identify zoned land within the scope of the tax, maps will be prepared and published by local authorities in advance of the commencement of the measure. These maps will be updated on an annual basis.

The Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, has indicated a process will be established to enable any person to apply to their local authority to have the zoning status of their land amended.

The process will be aligned with normal local authority procedures and each case will be considered on its merits in the context of proper planning and sustainable development.

An appropriate lead-in time for the general application of the zoned land tax will be required following its introduction in the finance Bill this year. I am proposing a two year lead-in time for land zoned before January 2022 and a three year lead-in time for land zoned after January 2022. This will give scope to review the workings of the tax, to listen to stakeholders and to ensure it is effective and equitable. The tax will be based on the market value of the land and I have determined that the rate at the outset should be 3%. This aligns with the starting point for the vacant site levy when it was first introduced.

The introduction of this tax is a very important step forward in encouraging the release of land for building homes and, depending on its impact, I will be open to reviewing the rate in the future. There will be a number of exclusions from the tax, such as dwelling houses and their gardens, amenities and infrastructure.

Other exemptions will be defined in the finance Bill. The tax will operate on a self-assessment basis and will be administered by the Revenue Commissioners. Finally, it is worth noting that this tax will replace the vacant site levy when it comes into operation.

HELP-TO-BUY

Ensuring that people have access to home ownership in this country is an absolute priority for this Government. Focusing directly on those trying to access the housing market, the help-to-buy scheme has been a significant support for first-time buyers of new homes. For 2022, the scheme is being continued at the current rates. Consistent with recent tax strategy group recommendations, I am also announcing that a full review of the scheme will be carried out in the course of next year.

PRE-LETTING EXPENSES FOR LANDLORDS

Also on housing, I propose to extend the relief for pre-letting expenses for landlords for a further three years. This will continue to encourage landlords in the residential rental sector to return empty properties to the market as quickly as possible.

CLIMATE CHANGE

I will now turn to one of the most important issues of our time, that is, climate change. Future generations will not tolerate inaction from the leaders of today. By "future generations", I do not just mean children yet to be born. Children, teenagers, and the younger adults of today demand action. They deserve action. They are clear in their arguments and the science is unambiguous: the world is burning, and the only chance we have to control those fires is through coherent and effective policies. This is why carbon taxation is so important.

The Finance Act 2020 provided for annual increments in the carbon tax of €7.50 out to 2030. This provides a clear signal for producers and consumers in terms of the price of carbon. Studies have shown that carbon taxation is likely to be the single most effective climate policy that can be pursued by Government-----

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