Seanad debates

Tuesday, 12 October 2021

12:00 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I am pleased to have the opportunity to appear before the Seanad today to contribute to the debate on budget 2022, which the Minister for Finance presented to Dáil Éireann a few hours ago. This year's budget has been prepared against a much more positive backdrop than the situation we faced this time last year. Forecasts of GDP growth in the economy have been revised upwards to around 15.5% this year, with modified domestic demand – a better measure of domestic conditions – expected to grow by about 5.25%.

We are now finally emerging from an unprecedented period which saw our economy and our society suffer at the hands of a terrible virus. I am acutely conscious of the impact the Covid pandemic has had on people’s lives and livelihoods. It has not been easy, yet we have shown immense resilience. We prioritised each other, limited our interactions, respected public health restrictions and got vaccinated in massive numbers. As we take the next steps on the road to recovery, we remember those loved ones whom we have lost and acknowledge the tremendous efforts we have made to get to where we are, particularly the dedication and commitment of our front-line workers.

Our collective efforts have helped facilitate the reopening of the economy and return to a more normal social life, and will see the removal of almost all of the remaining public health restrictions late next week. While we will remain vigilant, we must embrace this next phase in shaping our future. Budget 2022 will play an important role in this regard, adding to the significant policy actions that we have already taken to mitigate the impact of the pandemic. To date, the Government has made over €48 billion available to support household incomes, businesses and our healthcare system. This response was only feasible because of the careful management of our national finances in the years leading up to the pandemic.

This year’s budget represents the next phase of our national policy response. It will help us to prepare for a sustainable recovery that renews our public services and living standards, strengthens our economy and repairs our public finances. The approach the Government is taking is two-pronged. First, we will continue to invest in the productive capacity of our economy and, second, we will return the public finances to a sustainable trajectory on a phased basis.

Given the continued levels of uncertainty, the budget is based on a number of underlying assumptions. One of the most important is that the virus remains contained at levels that do not jeopardise the capacity of our healthcare system. Over recent months, the successful vaccination programme and associated easing of public health restrictions have supported a strong rebound in economic activity. In the second quarter, modified domestic demand surpassed its immediate pre-crisis level. It must be acknowledged that the relatively fast return to pre-pandemic levels of activity is not uniformly reflected across all sectors. As such, supports continue to be required to facilitate the transition of workers and businesses to a more secure position.

Overall, the strong near-term outlook is feeding through to the labour market, where the number of people in employment is expected to increase by around 275,000 in 2022. Unemployment is expected to ease to approximately 6.5% by the end of next year. The Government remains committed to supporting the transition to employment for those who need help, including through training and reskilling programmes.

All of the actions we take must be consistent with maintaining stability in our public finances. A key budgetary objective is to ensure the deficit remains manageable and is steadily brought down to a balanced position over the medium term. Public expenditure will amount to €87.6 billion next year, which is below the ceiling set in the summer economic statement. The improving economic outlook is feeding through to the public finances, with the combined deficit forecast for this year and next reduced from just over €34.5 billion to €21.5 billion. However, while we are reducing our borrowing, the amounts involved remain substantial.

The budget represents an appropriate balance between tapering supports and continued investment. By 2023, the remaining deficit will solely be due to capital spending. The deficit is expected to be around €8 billion next year, but almost €11 billion of this is capital expenditure. We are, therefore, borrowing only for investment in 2022, which is a year earlier than targeted.

The staged repair of the public finances is crucial to our recovery and to insulate the economy from future shocks. It will ensure fiscal sustainability, bringing our borrowing needs back down within the limits established by EU fiscal rules. It is in this context that budget 2022 sets out a range of measures to support the recovery in the economy. The budgetary package amounts to €4.7 billion. Some flexibility has been built in to allow for any unexpected deterioration in the outlook and exceptional supports for Covid-19. The expenditure measures amount to €4.2 billion, with a further €500 million allocated to tax measures.

Turning to specific budget measures, the employment wage subsidy scheme, EWSS, will remain in place until 30 April 2022 to support vulnerable but viable businesses. For the period from December this year until February 2022, a two-rate structure of €151.50 and €203 will apply, with a flat-rate subsidy of €100 in place for March and April. Businesses availing of the EWSS on 31 December will be supported until 30 April 2022.

On remote working, the Government wants to facilitate a blended approach and support a better work-life balance. As such, an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity and broadband while working from home is being introduced.

On income tax, a package of over €500 million will be introduced to support workers in light of cost of living pressures. The standard rate band will be increased by €1,500 and the personal tax credit, employee tax credit and earned income credit by €50 per credit.

On the universal social charge, USC, the ceiling of the second USC rate band will be increased to €21,294 to ensure that the salary of a full-time worker on the minimum wage remains outside the top USC rates. The exemption from the top USC rate for all medical card holders and those aged over 70 years earning less than €60,000 per annum is being retained. In addition, the national minimum wage is being increased by 30 cent to €10.50 per hour.

Housing is a key priority for this Government, with the recent Housing for All strategy setting out clear targets in this area. In this regard, a zoned land tax is being introduced which will apply to land that is zoned suitable for residential development and is serviced. It will be linked to the market value of the land, with the rate set at 3% per annum. The tax will replace the existing vacant site levy.

Also on housing, the help-to-buy scheme is being continued at the current rates for 2022 and will be subject to a review next year. In addition, the relief for pre-letting expenses for landlords is being extended for a further three years to encourage landlords in the residential rental sector to return empty properties to the market as quickly as possible.

Another key priority I will highlight is climate change. The Finance Act 2020 provided for annual increments in the carbon tax of €7.50 out to 2030. In order to ensure a just transition, the additional revenue will be used to fund climate-related policy measures, including a socially progressive national retrofitting programme, and to address fuel poverty.A modest tax disregard is also being introduced on personal income received by households who sell surplus electricity back to the national grid. In addition, further changes to the vehicle registration tax system are being introduced to help reduce road transport emissions, with the VRT relief for battery electric vehicles being extended to the end of 2023. The scheme for gas vehicles and refuelling equipment is also being extended for three years and hydrogen powered vehicles and refuelling equipment are being included in that scheme. I want to say very clearly that supporting farming families will play an important role in protecting the environment. As such, various farming stock relief measures are being extended.

Entrepreneurs and the business sector are another integral part of our domestic economy. Budget supports will include amendments to the employment investment incentive, extending it for three years and opening it up to a wider range of investment funds. The innovation equity fund, which is due to be launched in early 2022, will increase the availability of financing for Irish SMEs. In addition, corporation tax relief for certain start-up companies is being extended. A new tax credit for the digital gaming sector is being introduced to support digital games development companies by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a game. The relief will be available at a rate of 32% on eligible expenditure of up to a maximum limit of €25 million per project.

In terms of revenue raising measures, excise duty is being increased on a pack of 20 cigarettes by 50 cents, with a pro rataincrease on other tobacco products. The bank levy will be extended for a further year and will be subject to a review next year. The transposition of the anti-tax avoidance directives will be completed in the Finance Bill 2021. As regards preparing for future needs, the work of the independent Commission on Taxation and Welfare, which is due to launch a public consultation shortly, will be crucial in ensuring that the Government supports a sustainable recovery over the coming years.

The key objectives underlying today’s budget are to ensure that we recover from the pandemic, restore our public services and living standards, and repair the public finances. The budget package and individual measures seek to balance these three priorities, harnessing our resilience and determination to deliver a sustainable economy and a truly inclusive society.

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