Giveaway Budget on the cards, with €8.3bn in spending and tax cuts

With many political observers expecting Taoiseach Simon Harris to call a general election soon after the October 1 Budget, it is now clear that the coalition is planning to offer a range of tax and spending sweeteners to the electorate.

At the launch of the Summer Economic Statement in Government Buildings today, Finance Minister Jack Chambers announced additional public spending of €6.9bn.

This amounts to an increase of 6.9pc, which once again breaches the 5pc limit the Government had set itself.

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By contrast, Brian Cowen’s last Budget as Finance Minister before the general election of 2007 had €4.4bn in spending increases. Fianna Fail went on to win 41.5pc of the first-preference vote in that election, securing Bertie Ahern a third term as Taoiseach.

Justifying the spending increase, Mr Chambers says it is to accommodate higher capital spending, and to provide additional public services as the population increases more than expected.

An extra €1.5bn in funding is being given to health this year, with the Government saying this is needed because of the “complexity” of providing health services, and due to the legacy impact of Covid-19 and high inflation.

Also at the launch of the Summer Economic Statement, which sets the financial parameters for the upcoming Budget, Mr Chambers said the package would include €1.4bn in tax measures.

This compares to last year’s tax package of €1.15bn.

There are growing expectations that the VAT rate for hospitality and retail will again be reduced to 9pc, due to pressure on those sectors, while Fine Gael seems intent on reforming inheritance tax, most likely by doubling the threshold to about €700,000.

The extra public spending flies in the face of advice from both the Central Bank and the Irish Fiscal Advisory Council (Ifac), which has said current budgetary policy is “not appropriate for the economy or the public finances”.

Gabriel Makhlouf, the governor of the Central Bank, has warned that a giveaway Budget risked overheating the economy, and said taxes must rise to meet the growing spending demands being imposed on the State.

However with tax receipts buoyant after the first half of the year, and Sinn Fein sinking in the opinion polls, it seems the coalition cannot resist a giveaway Budget.

The public finances are certainly in a healthy enough state to allow it – the tax take for the first six months was up 9pc year-on-year, and the €9bn collected in June alone was up 22.6pc on the same month last year.

In his first weeks in the job, Mr Chambers had been trying to dampen his colleagues’ expectations, saying that ministers would have to prioritise their projects. It would now appear that the Budget will be less “challenging” for them than he had predicted.