Seán 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 2023, which the Minister for Finance and the Minister for Public Expenditure and Reform presented to Dáil Éireann this afternoon. As with the budgets of the past few years, budget 2023 is being framed against a difficult and uncertain economic environment. While we all hoped this year would see us building our recovery from the Covid-19 pandemic, Russia's invasion of Ukraine has changed the domestic and international landscape. The war, which first and foremost has had a devastating humanitarian cost, has also created substantial economic costs and elevated uncertainty. This presents a significant challenge as we set out budget 2023.

Inflation has hit its highest level in decades. The latest projections are for it to average 8.5% this year and around 7% next year. This is a familiar picture across international economies. The impact of the war is also weighing on economic growth. Higher inflation will reduce purchasing power and consumer spending, with rising interest rates and uncertainty dampening investment. While Ireland recorded strong growth in the first half of the year, we are now revising downwards our forecasts. Modified domestic demand – the preferred measure of domestic activity – is projected at 1.25% next year. This is having a very real effect on our day-to-day lives. It is directly impacting businesses' and households' incomes and living standards. It is for this reason that the Government has today presented a cost-of-living budget focused on helping our citizens in meeting these challenges and putting money back in their pockets.

Despite the difficult and deeply uncertain economic environment, we should recall the resilience of our economy and society in responding to crises, not least the Covid-19 pandemic. The Government employed the full range of fiscal resources we had carefully built up over many years successfully to protect households and business, insulating our economy from long-term damage while supporting our healthcare and front-line workers. This approach helped to deliver a remarkable labour market recovery, with employment in the second quarter of this year reaching 2.5 million people, the highest level on record and, as of August, the unemployment rate had fallen to 4.3%.

In tandem with this, the public finances have bounced back strongly. This reflects the responsible approach we have taken in managing our response to recent economic shocks. The Government must find the correct balance that does not jeopardise fiscal sustainability. While the recovery in the public finances is broadly based, we must recognise a portion of the surge in tax revenue is due to windfall corporation tax receipts. The Department of Finance and many other commentators have warned about the risk this could present, particularly if the situation were to change suddenly and significantly in the future. In light of this vulnerability, the national reserve fund will be replenished with some of these revenues, with €2 billion directed into the fund this year and a further €4 billion transferred next year.

It is also important to remember that, as in the pandemic, the Government has already responded quickly and decisively to support households and businesses, particularly the most vulnerable, with rising cost-of-living pressures. Not only did we take the decision to bring forward budget 2023 by two weeks to provide a more timely response, we have also announced cost-of-living packages amounting to just under €2.5 billion over the course of the year and amended our fiscal strategy for 2023 by doubling the size of the tax package and increasing public expenditure. While a strong fiscal response in budget 2023 is warranted, given the uncertain situation and the direction of monetary policy, we must carefully balance the provision of supports with not adding to demand pressures, ensuring the sustainability of the public finances and keeping resources available to respond to tomorrow's challenges.

Today, the Minister for Finance and the Minister for Public Expenditure and Reform, Deputies Donohoe and Michael McGrath, announced a package of supports amounting to some €11 billion, with a further €300 million in public service support measures funded from the contingency reserve fund. Given the urgency of the challenges we face, €4.1 billion of this package will be spent this year. In terms of taxation, the current excise reduction of 21 cent per litre in respect of petrol, 16 cent per litre in respect of diesel and 5.4 cent per litre in respect of marked gas oil is being extended until 28 February 2023. This extension is also being applied to the 9% VAT rate for electricity and gas.

In addition, the budget includes an income tax package that amounts to over €1 billion, with the standard rate cut-off point increasing to €40,000 and the main tax credits, that is, personal, employee and earned income credits, rising by €75. The home carer's tax credit is also being increased by €100 to support stay-at-home parents. The 2% universal social charge, USC, band ceiling is increasing and the reduced rate of USC for those who have a medical card and earn less than €60,000 per annum is being extended for a further year. Further consideration will be given to the introduction of a third rate of income tax, with a report to be published prior to next year's summer economic statement.

Alongside the cost-of-living crisis, housing remains a key focus of the Government. The unprecedented level of investment in housing is starting to yield results, with some 25,000 new homes built in the past year, which is the highest level in a decade. However, the Government is committed to doing more. Consideration will be given to the recommendations of the independent review of the help-to-buy scheme in future budgets. In the interim, the scheme will continue until the end of 2024 at the current rates. A vacant homes tax is being introduced to increase the supply of homes for rent or purchase to meet demand. This tax will be charged at a rate equal to three times the property's existing basic local property tax, LPT, rate. In terms of the rental market, the Government is introducing a new rent tax credit to support tenants, which will be valued at €500 per annum and will benefit 400,000 people. It is available this year and next year as well.

In the area of climate action, the Government remains committed to protecting the environment, reducing emissions and supporting newer, cleaner technologies. Carbon taxation is necessary to provide the additional funding for vital climate measures, such as retrofitting. As such, the rate per tonne of carbon dioxide emitted for petrol and diesel will increase by €7.50 to €48.50 from 12 October.However, given the current cost-of-living pressures, this will be fully offset with a reduction to zero of the National Oil Reserves Agency levy.

On agriculture, several important reliefs, such as the farm consolidation stamp duty relief, are being extended to support young farmers and the farming sector more generally.

The Government has also announced specific measures to support business and enterprises. These include amendments to the small benefit exemption and reductions in the excise fees for special exemption application orders to provide support to the night-time economy. More broadly, the Government is introducing a temporary business energy support scheme to assist firms with the rising cost of energy during the winter months. This scheme will provide eligible businesses with up to 40% of the increased cost in their energy bills.

Regarding revenue-raising measures, it is not appropriate for energy companies to earn excess profits from the current volatile conditions. The EU is undertaking work to capture the windfall energy gains of these firms. Ireland aims to participate in the EU-wide response, although if this is not feasible, the Government will propose its own measures.

To support public health objectives, excise duty on a pack of 20 cigarettes is being increased by 50 cent, with a pro rataincrease on other tobacco products. Also, a zero VAT rate will be applied to defibrillators from 1 January 2023, along with several other VAT changes.

On longer term matters, the Department will develop a roadmap for personal taxation reform and commence reviews of other regimes based on the Commission on Taxation and Welfare’s recommendations over the coming months.

It is clear that effective Government action had already put Ireland back on the road to recovery from the pandemic, with our employment levels and public finances in good health. This has put us in a strong position to confront the challenges we face today. Our decisive response to date has helped to mitigate the impacts of inflationary pressures on vulnerable households and businesses. Today’s cost-of-living budget will continue to provide much-needed support over the final months of this year and into next year. Given the elevated uncertainty we are facing, we will continue to manage the public finances effectively to have the resources available to best respond to future challenges and support people.