Paschal Donohoe has said that the continuing rise of prices in Ireland would have a “fundamental” impact on the budget, ahead of the “spending envelope” being revealed.
The Minister for Public Expenditure also defended the Government’s handling of billions in surplus collected by Ireland, fuelled mostly by several multinationals’ corporate tax funds.
He said that he and Minister for Finance Michael McGrath “couldn’t be more aware” of the risks that need to be managed in relation to the surplus, and the public spending rule.
A target of 5 per cent growth on core expenditure has been set to ensure public spending is sustainable.
Mr Donohoe said that the Government aimed to continue “to not spend a level of corporate tax receipt that we fear might not always be available, while also try to make progress on the issues the country wants us to make progress on”.
“We, I hope, will reach agreement in relation to all these matters very shortly,” he told reporters in Dublin on Monday.
“A huge amount of work has happened on this topic with myself, Minister McGrath, and the party leaders over the last month.”
He added: “I’m also really conscious that while inflation is now showing some signs of slowing down, the price of so much in our society is still going up, that impacts fundamentally then on the budget decisions that we will make.”
In relation to corporate tax receipts, he said that the party leaders appreciate the need to be aware of the risk because the impact of “repeating that practice for a second time would be really significant”.
“For me what is critical in all of this is, while there is a once in a lifetime opportunity in some ways regarding the higher level of tax receipts that are coming in, I am acutely conscious that we have been here before,” he said.
“That 15 years ago, there was a further spike in tax receipts that we assumed would be with us for the foreseeable future, and it turned out not to be, and I saw this country pay a bitter price because of that assumption being wrong.”
The Government is expected to unveil its Summer Economic Statement on Tuesday after it is approved by Cabinet.
It gives a broad sketch of what the next budgetary package, to be revealed in the autumn, will be worth.
Last year, the Government announced an €11 billion budgetary package, with €6.9 billion in Budget 2023 and accompanied by €4.1 billion in one-off measures to help with the rising cost of living.
In relation to the programme for Government commitment that “credits and bands will be index-linked to earnings”, Mr Donohoe has said that he is confident the Government can make income tax changes without adding to inflation.
He said he believed that whether it was tax indexation or tax cuts, that it felt the same to the taxpayer – adding that a decision had not been made on the size of the budgetary tax package.
He added: “Last year, for example, when we moved the standard rate cut-off point up to 40,000 euro… that did allow taxpayers to keep a larger share of their after-tax income, and whether that is indexation or a tax deduction, for the taxpayer I think it felt the same.”
He said the shift to tax bands was possible to do “at a level that does not create an inflationary risk, and I’m confident that we’ll get the balance right between all of that when we prepare the Summer Economic Statement”.
