Speaking the Crowe Budget 2022 Briefing webinar, economist Jim Power delivered a comprehensive assessment of this year's budget. The following is his follow up analysis and his presentation can be downloaded below.
Budget 2022 was framed against a much better background than a year earlier. The economy is recovering from the worst effects of Covid-related restrictions. It was essential that the budget helped the economy deal with the issues in a post-Covid economy, while bearing in mind the risks, challenges and opportunities facing Irish business and the general economy in 2022.
As expected, the budget focused on a gradual unwinding of Covid supports; measures to alleviate cost of living pressures; housing; climate change; labour force participation; and a significant social welfare package.
As outlined in the Summer Economic Statement in July, the budget-day package was €4.7bn. This was broken down into €4.2bn in expenditure measures and a net tax reduction package of €500m (revenue raising measures totalling €230m were announced). The €4.2bn expenditure package contained €1.45bn in new measures.
The budget spread a lot of resources thinly over a lot of areas. Most people will be slightly better off as a result of the budget, but few if any will be significantly better off. That is typically the nature of budgets, which generally have more to do with politics than economics.
The bottom line is that Ireland has a very high level of debt; there are numerous domestic and external challenges facing the country; significant State spending has been committed to into the medium term, so we must hope that Government borrowing costs remain low and that international market confidence in the country remains strong.
On the fiscal front, the public finances have moved into significant deficit since March 2020, but this is due to increased expenditure related to COVID-19, rather than a decline in revenues. In fact, tax revenues have held up remarkably well during the pandemic. In total, it is estimated that the State has had to borrow €34bn more than it was planning to deal with the COVID-19 crisis.
In the first nine months of 2021, an Exchequer deficit of €6.2bn was recorded, but on a 12-month rolling basis, the deficit was €9.1bn. Total tax receipts in the first nine months of the year were 15.9% or €6.3bn higher than the equivalent period of 2020. Income tax receipts were 19.5% higher; corporation tax receipts were 7.9% higher; and VAT was 26% higher.
The strength of tax receipts reflects strong profitability in the multi-national component of the economy; a strong rebound in consumer spending; and the highest earning and highest tax-paying element of the labour force was not significantly affected by COVID-19. The very progressive nature of the Irish income tax system is ensuring that income tax revenues are remaining buoyant. The strong performance of multi-national profits is ensuring that corporation tax receipts are also buoyant.
Table 1: Tax Receipts (Jan-Sep 2021)
Source: Department of Finance
On the expenditure side, the pressures are still high. Total gross voted expenditure in the first nine months of the year amounted to €60.7bn, which is 3.9% higher than the first nine months of 2020. Gross voted current expenditure accounted for €56.3bn of the total, and was 4.9% up on the same period in 2020.
Current spending on social protection totalled €23.1bn and accounted for 41.1% of total gross voted current expenditure. Current spending on Health totalled €14.6bn and accounted for 26% of total gross voted current expenditure.
Table 2 shows the medium-term fiscal projections following the measures contained in Budget 2022.
Table 2: Fiscal Projections 2021-2025 (Budget 2022)
Source: Department of Finance, Budget 2022, 12 October 2021
As expected, the total budget package is worth €4.7bn. This includes a tax package of €500m and an expenditure package of €4.2bn.
In 2022, €87.6bn will be allocated for public expenditure. €80.1bn of this will be made available for core expenditure, an increase of over €4.2bn or 5.5% on 2021, with capital spending increasing by more than twice the rate of current spending. There will be €69.2bn for core current expenditure – an increase of 4.6% on 2021. €11.1bn will be made available in 2022 under the National Development Plan, a 14% increase on the capital allocation in 2021.
In relation to climate change:
On the housing side, the Government’s Housing for All strategy targets the delivery of 33,000 new houses per annum on average out to 2030. In relation to housing, some initiatives were announced in Budget 2022: