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Post-pandemic boom to fund four years of tax cuts as Donohoe loosens purse strings


Finance Minister Paschal Donohoe wants to ramp up non-Covid spending. Photo: Kyran O'Brien

Finance Minister Paschal Donohoe wants to ramp up non-Covid spending. Photo: Kyran O'Brien

Finance Minister Paschal Donohoe wants to ramp up non-Covid spending. Photo: Kyran O'Brien

Four years of tax cuts are being planned by the Government on the back of a post-pandemic economic boom.

Despite needing to borrow nearly €19bn more than expected to balance the country’s books for this year, Paschal Donohoe intends to keep the purse strings loose for the lifetime of this Government.

The Finance Minister is looking at €2bn of tax cuts by the end of its term in 2025, while at the same time ramping up non-Covid spending.

Agreement on a Summer Economic Statement (SES) was delayed by a row over how much money should be allocated for the housing crisis.

Fianna Fáil were pushing for additional spending on housing, but Fine Gael insisted tax cuts and welfare increases needed to be accounted for as part of the medium-term forecasts.

In the end the Coalition parties signed off on new spending forecasts that allow for significant tax measures along with huge current spending and capital investment up to 2025.

The economic plan estimates there will be €1.5bn for extra spending that is not related to Covid and for tax cuts for both of the next two budgets.

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There will be a further €1.6bn for new measures for the last two years of the Government’s tenure.

The document says there will be €500m factored into every budget for new tax-reduction measures. There are strong indications these would be include so-called tax indexation – which means that as incomes rise with inflation their income tax bands will rise, so those getting a pay increase get to keep more of their raise.

The tax and spending plans are based on a forecast of robust economic growth over the coming four years being more than enough to meet higher expected costs of an ageing population and growing health and educational needs. 

These expect the temporary Covid spending of this and last year to be gone by 2023.

The SES predicts significant economic growth that will allow the Government to spend around €50bn on capital projects such as housing, roads, schools and hospitals in the coming years, which will be set out in the National Development Plan published later this year.

Day-to-day running costs of the country will rise between €3.2bn and €3.4bn each year until the end of the Government’s term in office.

The forecast also notes corporation tax may be a “less powerful tool in winning new investment” after Brexit.

It says the Government must take into account “adverse revenue developments, most notably the very real possibility of lower corporation tax receipts”.

The SES says the recent agreement by the G7 “poses a serious risk to Irish corporation tax revenues” and could result in €2bn less revenue

During negotiations, Fianna Fáil Housing Minister Darragh O’Brien pushed for more State support to address the housing crisis. Mr O’Brien’s proposals under his Housing for All plan would require significant budget resources such as grants to allow first-time buyers to do up old homes.

Mr Donohoe said the SES set out a credible strategy for returning the public finances to a sustainable position.

Public Expenditure and Reform Minister Michael McGrath said they had set out their “intention to make a massive investment in the future well-being of our country and the lives of our citizens”.

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