Leading economic analyst and commentator Jim Power was guest speaker at our Budget 2024 webcast. He was joined on the panel by corporate finance partner Aiden Murphy, tax partner Lisa Kinsella, tax director Michael O'Scathaill and audit director Aidan Ryan. The webcast was moderated by audit partner Brian Geraghty. Watch the recording here.
Budget 2024, to be delivered on 10 October, will be intriguing from both an economic and political perspective.
From an economic perspective, the external economic background is still deeply uncertain, with global inflation still at elevated levels, interest rates still being increased by the major central banks, and clear signs of slowing global growth, which is most pronounced in China and the Eurozone. Domestically, the economy is still performing quite strongly, as reflected in ongoing tax revenue buoyancy and a very tight labour market, with record levels of employment and a full employment level of unemployment at 4.1 per cent.
The economy is operating close to full capacity and bodies such as the Irish Fiscal Advisory Council (IFAC) and the Central Bank of Ireland are warning against too much fiscal stimulus on the basis that it could risk fuelling further inflation in an already high-inflation economy. However, there are still intense pressures on many small businesses and households due to elevated costs of living and costs of doing business. Consumer price inflation averaged 7 per cent in the first eight months of the year. For example, average mortgage costs have increased by 51.3 per cent over the past year. For smaller businesses in particular the cost environment is very challenging, with energy costs, wage costs, insurance costs and many other costs still at elevated levels. Unfortunately, it is possible that the European Central Bank (ECB) might tighten further, while global energy prices are again under renewed pressure.
From a political perspective, this is in theory the second last budget before the next general election, which must be held by February 2025. It could conceivably be the last budget depending on how the coalition holds together in 2024. Either way, there must be a strong temptation to go for a very expansionary budget to curry favour with the electorate.
In summary the budget will be a challenging balancing act between economic and political imperatives.
As was laid out in the Summer Economic Statement at the beginning of July and re-iterated by the Minister for Finance in his opening statement to the Committee on Budgetary Oversight on 27 September, the Budget package for Budget 2024 is €6.4 billion, comprising a little over €1.1 billion for taxation measures and core expenditure of just over €5.2 billion. This would bring net core spending growth for Budget 2024 to 6.1 per cent. This is above the original 5 per cent expenditure target set out in the Government's original medium-term budgetary strategy. However, this is being justified by the two ministers on the basis that they had to consider the new economic landscape: inflation, while easing, is still at elevated levels and the Government will have to take account of this.
In addition to the package of €6.4 billion, there will be a limited amount of space available for temporary, once-off supports to assist with the cost of living, focused on the most vulnerable.
On the taxation side, the possibilities include reduction in the USC burden and a lifting of the income threshold where the top rate of tax must be paid. A middle rate of income tax is a possibility but is probably too radical to be considered. There may be further R&D incentives and improved treatment of entrepreneurs. In relation to housing, there may be some moves on mortgage interest relief (which would not be a good idea) and improvements in the tax treatment of private landlords.
On the expenditure side, social welfare will again increase substantially and of course health will see further growth. There will likely be some focus on energy reliefs for business and cost-of-living supports for households.
The two ministers will say that the budget aims to provide support to businesses and households, protect public services and invest in the productive capacity of the economy, without adding excessively to inflationary pressures. It is likely that a considerable amount of money will be spread thinly across society and nobody will be significantly better off. Such an outcome would be totally consistent with the political realities now.
Should you have any taxation or business questions, our experienced team will be happy to share their insights with you.