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

I am sure my office will furnish one to the Dáil as soon as possible.

The summer economic statement establishes the budgetary parameters for the discussions we will have in this House in advance of budget 2023. It also outlines the Government’s medium-term budgetary strategy for ensuring the public finances remain on a sustainable pathway.

I will outline the context within which the Government will publish the budget for 2023. Two and a half years ago, we found ourselves facing a public health emergency which no one could have anticipated. The Government responded in an unprecedented way to shield the economy. Years of careful and responsible budgetary management meant we had the resources to meet the challenges of that moment, and we deployed those resources in full. The cost was enormous, but we got the balance right. Government action prevented a deep and long-lasting recession and laid the groundwork for a strong economic recovery when we had moved beyond the most severe phase of the pandemic.

Nowhere is this more evident than in the jobs market. We now have more people at work in Ireland than ever before. When I think back to the depths of the pandemic when unemployment soared to record levels, this is a really important achievement. The actions and supports of the Government played a crucial role in this.

I would note we spent many years gradually building up the public finances. During this time, the constant refrain was that the Government should have been spending far more. Indeed, it may have been quite popular at times to do so, but if we had not restored the public finances, we would not have had the resources available to intervene on the scale we did and would have been in a more vulnerable position when the pandemic hit and, indeed, now.

We have proven our track record at being able to intervene at a time of such emergency and we have demonstrated the importance of being ready for new unexpected challenges, one of which we are now confronting today. I refer, of course, to the consequences of the Russian invasion of Ukraine and the after-effects of the pandemic on the supply of goods and services that have given rise to inflation not seen in many years. Now standing at 9.6%, inflation is at its highest level in almost four decades.

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Of course, Ireland is not unique in that most other developed countries are struggling with the same problem, but we accept and understand the difficult consequences of this inflation for our standard of living and for households and businesses throughout the country. We understand what the fall in living standards means for them and the difficult choices they are making.

While the drivers may indeed be global, we need to recognise there is no Government that can fully offset the impact of these changes on the lives of citizens. However, we have intervened to ease the burden and help with the costs, providing almost €2.5 billion in direct relief. Between the response to Covid and our response to the cost-of-living challenge, this means we have now provided in excess of €50 billion in budgetary support since early 2020 — a remarkable figure. The Government has not shied away from taking the necessary action when needed. The question now concerns what further action is appropriate and how we can strike a balance between intervening today and keeping our public finances safe so we will be safe tomorrow. We got the balance right during the pandemic and it is vital we again get it right as we address the consequences and challenges of cost-of-living increases. This leads on to the budgetary strategy the Government published.

Last year, we set out our medium-term budgetary strategy in the summer economic statement. This set out the pathway for gradually restoring the public finances to health while still allowing for reductions and changes in personal taxation. Under this strategy, core current expenditure growth will be limited to the trend growth rate of the economy so that, for example, if tax revenue exceeds expectations, it will not be used to finance new expenditure above levels already planned for.

However, the Minister for Public Expenditure and Reform, Deputy Michael McGrath, and I recognise that the statement was drafted in a dramatically different inflationary environment. To reflect this, for one year only, we have amended the strategy for 2023. Core current expenditure will increase by 6.5% next year. The tax package to be announced in budget 2023 will be just over €1 billion, more than double what was initially provided for. Therefore, the total package for next year will be €6.7 billion. This is a change for 2023 only. For future years, our strategy will remain unchanged, with core current expenditure targets at 5% per year and tax packages reflecting what we hope will be different and better economic circumstances. This strikes the current balance, acknowledging the new economic reality while setting out a sensible plan for restoring our public finances to strength over the medium term. This overall approach has been endorsed by the Irish Fiscal Advisory Council. Taking into account positive tax developments, a budget package of €6.7 billion would be consistent with a very modest budgetary surplus for next year. I stress, however, that this would be due solely to the strong growth in receipts we have seen from corporate tax. As I said to this House on countless occasions, while these receipts are welcome and a sign of the strength of our multinational sector, they are also highly concentrated, with just ten firms paying more than half of the entire corporate tax take. This leaves the public finances exposed to vulnerability from a potentially volatile, unreliable revenue stream.

We know all too well in this country that leaving the public finances vulnerable to changes in transient revenue is potentially catastrophic. It is not so long ago that our tax receipts had become overly reliant on another source of windfall tax receipts – those related to the property market – and we are all aware of the consequences of that.

Over the medium term, we know that changes to the international tax regime are forthcoming. While the full impact of the changes agreed under the base erosion and profit-shifting, BEPS, process will take time to become apparent after implementation, our current technical estimate is of a loss of €2 billion. In reality, due to other changes, for example, in the business cycle, the costs could be even higher. With this in mind, I would caution that while a headline budgetary surplus is certainly positive news, headline figures alone can overlook very real vulnerabilities in our public finances. It would not be safe to suggest we can begin spending at increased levels once such a surplus is achieved, particularly if that surplus ultimately proves to be passing because it is built on conditions and foundations that change.

Accordingly, I have asked my officials to examine the issue of excess corporation tax in advance of the budget so we can move to address this vulnerability while continuing to ensure Ireland remains a destination of choice for highly successful multinational investment. Such investment benefits our economy not just through significant tax receipts but also by creating many highly paid jobs.

The forthcoming budget will be a cost-of-living budget. We have already acted, repeatedly, to help to ease the burden and will continue to do so. In particular, we will ensure workers do not pay more income tax as a result of inflation pushing them into a higher tax bracket. We will introduce a carefully crafted, appropriate budgetary policy that serves to assist people with the cost of living but not add to the inflationary difficulties we face. We will ensure we keep our public finances in a safe way. In short, the strategy set out in the summer economic statement seeks to get that balance right.

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