In a few weeks, the new Coalition will unveil its first budget.
Meeting expectations and addressing a range of pressure points is going to be pretty tricky – especially in a context where its mooted plans are already being criticised by the Central Bank; and when the Irish Fiscal Advisory Council (Ifac) has called out the Government’s ongoing spending overruns as “poor planning and budgeting”.
One significant challenge is the range of “priorities” this Government has pledged action on: housing, child poverty, squeezed family budgets, childcare, disability, infrastructure and helping small business. It’s a long list.
And as Cliff Taylor notes in his column this weekend, there are then also commitments in terms of income tax relief for households in the programme for government.
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There simply is not enough money to make meaningful progress on all of these issues at the same time, while also providing “business-as-usual” incremental increases for departments, writes Taylor.
Households will also be closely watching the personal tax package this year. As recent near double-digit increases in energy prices, ongoing sharp increases in food prices (at a 20-month high) and still rising rental costs (now over the €2,000 per month mark) show, there is still significant inflationary pressure on households. This year, there will be no cost-of-living package and, thus, no energy credits or double child benefit weeks to salve it.
Taylor says: “Adding the tax cuts and one-off measures together, a typical middle-income single employee would have benefited by up to €1,000 from the income tax and energy credits in last year’s package.
“This could conceivably fall between €700 and €800 this year. And for a family with two earners and two children, the gains could fall from €2,800 last year to, perhaps, €1,600 this year.”
Taylor expects the Coalition to try to sugar the pill, perhaps by increasing the tax credit paid to renters and possibly extending the mortgage tax credit. There may be increases in the childcare package too.
Along with households, SMEs are also facing significant price pressures, with some of the loudest calls for help coming from a tourism sector operating in a market where Ireland is competing with other destinations.
From an international tourist’s point of view, Ireland is inexorably becoming more expensive. One recent Eurostat report found costs here 29.3 per cent higher than the European average, behind only Denmark. Prices linked to restaurants and hotels are up 39 per cent on 2016, according to Eurostat.
Tourists are responding by visiting less. CSO data on international arrivals showed a 10 per cent decline in May, compared with the same month last year.
Fine Gael is seeking a VAT cut for hospitality, which, even if limited to just food and not hotel stays, is likely to cost more than €650 million in a full year.
Whatever the Coalition decides to do on cost of living, hospitality, personal taxation and other areas, perhaps its core challenge is to establish credibility around housing.
Despite numerous plans and very considerable spending, it is very hard for the Government to point to significant progress in this area and the backdrop shows significant infrastructural deficits that will be expensive to address.
In this context, it is going to be challenging for the Government to provide a budget this year that eases pressures on households and SMEs while making significant progress on its stated priorities.
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