Emer Higgins (Dublin Mid West, Fine Gael) | Oireachtas source

Budget 2023 takes place against a backdrop of real uncertainty. People are feeling that uncertainty in their pockets at the moment. Between a war on European soil, the ever-present pandemic, the rising cost of living and the prospect of a potential UK trade war, these are no doubt challenging times. I am relieved to have steady and experienced financial leadership at a time like this. It is one of the main positives that our public finances puts us in a good position to weather this storm. Inflation is continuing to rise and this is eating into the hard-earned incomes of households and inhibiting businesses investment. In the face of these challenges, the Government cannot and will not bury its head in the sand. We will tackle these challenges head on.

Budget 2023 will be a cost-of-living budget, building on the €2.4 billion in financial supports that have already been provided to cushion the impact of higher prices on households. We must also, however, strike the right balance. Government policy will absorb some of the price shock but it cannot be used to absorb it entirely. This simply would not be economically viable. Budgetary policy should not and will not fan the flames of inflation and inadvertently add further inflation into the system. The lessons of past inflationary crises are very clear. The Government can no longer borrow at interest-free rates. Borrowing costs are on a rising trajectory. I strongly disagree with those who say we should simply borrow our way out of the current crisis.

Thankfully, our recent finances have been managed exceptionally well. The economy is recovering from the Covid-19 pandemic far quicker and far stronger than ever predicted, leaving us with an additional €6.7 billion. This gives me great confidence that we will be able to support the most vulnerable in these difficult times. While we are fortunate that tax revenue has held up remarkably well despite the challenging backdrop, much of this revenue comes from an increasingly narrow base. Corporation tax receipts have contributed greatly to our public finances. The Government is keenly aware, however, that this also represents a significant risk, with €1 in every €8 collected by the State coming from an exceptionally small number of firms. Obviously, this becomes a clear vulnerability in the public finances we need to be aware of. We cannot become overly reliant on tax revenue that may not always be there in future.

Against this backdrop, budget 2023 will focus on providing further supports, through targeted measures, to those households who need it most. It is so important to stress that the households that most need the help are not only those on low incomes and social welfare support. The squeezed middle desperately needs help as well. These are ordinary folk earning a decent wage but who can no longer afford a decent quality of life because the cost of living has risen so much.

There is a lot of pressure on budget 2023 but, nonetheless, in the areas like health, housing, childcare, energy, transport and taxation, it must and it will deliver. The summer economic statement provides for a total budgetary package of €6.7 billion for 2023, of which almost €5.7 billion will be allocated for public spending and €1.05 billion for taxation measures. This will bring core spending growth for 2023 to 6.5% compared with 4.7% as set out in the stability programme update, SPU.

On the tax side, this is double the amount set in the original strategy and, once again, reflects the need to adjust the parameters given the higher than assumed inflation. A key objective of taxation policy in the forthcoming budget will be to avoid workers paying additional tax simply because they move through higher tax brackets because of inflation. It is important that any measure introduced to put more money back in people’s pockets is not lost to tax.

On the expenditure side, the provision of overall core spending of €85.8 billion will support the implementation of measures that can protect the most vulnerable in society, address public service pay, support improvements in our public services and our infrastructure, and ensure policy does not become part of the inflation problem.

The key priority over the medium term will be to slow the pace at which debt is accumulated. This is particularly important given factors such as our ageing population, climate change mitigation, the digital transition, and funding for a number of Government policy decisions, which will all put significant pressure on public finances.

We are in a time of uncertainty. Revenues performed strongly in the first half of this year, but the less favourable outlook for the second half of the year will no doubt have implications. No one will thank me for mentioning winter in the middle of July but there is no doubt that, as we head into the colder and darker months, spending on heat and electricity will only increase. This is a worrying prospect for a lot of families. They are already worrying about making ends meet in the winter months. This is why the Government must strike a really delicate balance between delivering timely and targeted support while at the same time ensuring the public finances remain on a sustainable trajectory for the future challenges that will come.

I have every confidence we can and will deliver on those ambitions.

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