Róisín Shortall (Dublin North West, Social Democrats)
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65. To ask the Minister for Finance the additional revenue raising measures he is considering to ensure sustainable funding of public services, following the Parliamentary Budget Office and the Irish Fiscal Advisory Council calculation that an extra €7 billion per year is needed; and if he will make a statement on the matter. [3331/23]

Róisín Shortall (Dublin North West, Social Democrats)
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I join with others in congratulating the Minister on his new role. I wish him well and look forward to working with him. I also extend best wishes to the Minister of State, Deputy Carroll MacNeill, in her promotion. I hope she has a fruitful career in the Department of Finance.

My question relates to choices that were made at budget time whereby a very substantial tax package benefited a small minority of taxpayers. A huge number of taxpayers did not get any benefit from it. That was a political choice the Government made and with which I disagreed strongly at the time. I made the case, as the Social Democrats always do, for greater investment in and better access to public services as a better way to spend money.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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I thank the Deputy. Her time is up.

Róisín Shortall (Dublin North West, Social Democrats)
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I wish to ask the Minister about the repercussions of that.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank Deputy Shortall very much. I look forward to working with her over the period ahead.

In the summer economic statement 2021, the Government adopted a medium-term budgetary strategy that would ensure continued investment in public services and progressive reductions in personal taxation while maintaining our public finances on a sustainable path. This strategy was operationalised through ceilings on growth in public expenditure. Core current public expenditure growth will be capped at 5% per annum, broadly in line with the estimated trend growth rate of the economy over the medium term.

As the Deputy knows, last year, in recognition of the far less benign inflationary environment, this strategy was adapted on a once-off, temporary basis to provide for an increased budget 2023 package of €11 billion of new measures to continue to fund public services and provide relief for households and businesses struggling with the cost-of-living challenge. Crucially, however, it is planned that future budgets will return to the sensible and sustainable fiscal parameters set out in the medium-term budgetary framework.

In formulating budgetary policy in a context of inflation running at multi-decade highs, Government must strike the appropriate balance between continuing to support public services while avoiding poorly crafted fiscal policy. Inappropriate policy measures exacerbate the problem, contributing to a severely damaging inflationary spiral and becoming part of the very problem it was intended to address. As a result, the Government's response to inflation has focused on measures that are temporary, timely and targeted and aimed at those most in need. This is the most economically appropriate response to an inflationary shock driven primarily by global pressures where Government cannot fully absorb the impact. The Irish Fiscal Advisory Council, IFAC, also assessed that the Government's approach in the budget struck the appropriate balance between supporting vulnerable households and avoiding adding to inflationary pressures.

Structural fiscal headwinds in the coming years will involve major challenges. Perhaps I can elaborate further in relation to population, the impact of the international tax agreement and also climate action measures.

Róisín Shortall (Dublin North West, Social Democrats)
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At the time of the budget, the Parliamentary Budget Office in the Oireachtas and the Irish Fiscal Advisory Council both calculated that an additional €7 billion per year is needed to meet inflationary costs and allow public services just to stand still. They calculated that the bottom line with regard to the budget was that just €2.2 billion was allocated for that purpose. That obviously leaves a huge shortfall. The implications are that as the year goes on, we will see inevitable cutbacks in key public services. Does the Minister accept the figures of both of those bodies? Does he have proposals for revenue raising to at least make up that shortfall so those services can stand still, although they will arguably need more?

Michael McGrath (Cork South Central, Fianna Fail)
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I am not anticipating any cutbacks in public services arising from the budget for 2023. I am very well aware of the projections the Irish Fiscal Advisory Council made about the costs the State will be incurring over the years ahead in respect of a whole range of areas, including demographic costs, the cost of Sláintecare and the cost of climate action measures. That will involve the Government making choices. As the new Minister for Finance, I have, as the Deputy knows, inherited the Commission on Taxation and Welfare report, which makes for very interesting reading and sets out a whole series of recommendations. There will be choices to be made regarding both expenditure and taxation over the coming years to ensure our fiscal position is sustainable. While we had a very strong headline surplus in 2022, the underlying position is different because we had buoyant corporate tax receipts. My Department and Revenue have estimated that approximately €10.5 billion of those receipts are potentially windfall in nature and cannot be relied upon into the future.

Róisín Shortall (Dublin North West, Social Democrats)
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That is fine except the Minister's partners in Government have signalled a direction of travel with regard to further tax cuts and the substantial costs those will entail. Does the Minister accept the figure from the Irish Fiscal Advisory Council and Parliamentary Budget Office that the Government needs €7 billion in the current year for public services to stand still? What does the Minister expect the shortfall will be? Is he again going to rely on being bailed out with corporate taxes? My principal question, however, is whether the Minister accepts that €7 billion figure and the shortfall in his calculations. If so, how does he intend to make up that shortfall?

Michael McGrath (Cork South Central, Fianna Fail)
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I do not accept that there is a shortfall in 2023. We believe we have made adequate provision across all of the expenditure Votes in 2023 to meet the Government priorities. Within that there will be a lot of choices and decisions to be made but from our perspective, there is certainly not any shortfall in the budgetary position across Departments for 2023.

The Deputy made a point about income tax reductions. I make the point to her that if you have a static tax system and, at a time of rising incomes, you make no change to bands or credits, that is an increase by stealth. That is an issue the Government believes needs to be addressed. There is a programme for Government commitment to increase bands and credits. We have, thankfully, made progress on that in the last number of budgets. Coming up to every budget, we will assess the budgetary position and economic circumstances and make the best decisions we can.