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Coalition has double the room for manoeuvre as it eyes up €1.5bn package to counteract inflation


Finance Minister Paschal Donohoe. Photo: Collins

Finance Minister Paschal Donohoe. Photo: Collins

Finance Minister Paschal Donohoe. Photo: Collins

The Summer Economic Statement, to be unveiled today, will reveal double the room for manoeuvre the Government had for last year’s budget.

It means a counter-inflation package this year will run to at least €1.5bn - split two-to-one in favour of extra State spending to aid families over tax reductions and the elimination of charges.

This would see up to €1bn on increased social welfare payments, along with the public sector paybill and built-in commitments, with up to €500m forgone through lower taxes, abolition of charges, and higher thresholds.

The Government is to aim for a balanced Budget this year. The Irish Independent understands that a projected €1.6bn surplus could now even be exceeded, but planners intend not to risk a deficit because of the rising cost of borrowing.

But it still gives the Coalition – now battling for its survival – a fighting fund to put money back into voters’ pockets as they struggle with spiralling inflation.

A senior minister said yesterday that the good news was there was “a lot of space” for cost-of-living concessions, with ministers likely to sign off at Cabinet today on bringing Budget Day forward by a couple of weeks from its usual slot in early October.

With the Dáil about to adjourn for its summer recess, ministers want to reassure the public that help is on the way – even though it
will not offset the full ravages of spiralling prices caused by Russia’s invasion of Ukraine and a consequent spike in energy prices.

The Government could produce a figure for ‘fiscal space’ – the money that it has to spend – that looks even more impressive thanks to booming corporate profits and remittances to the Exchequer.

However, a lot of this will vanish through projected cost rises to maintain the existing level of services.

But even if another half a billion euro is spent just to stand still, ministers are still planning a €500m tax package and around €500m in new spending. 

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The Cabinet will have to agree the exact numbers today but Finance Minister Paschal Donohoe is prepared to be flexible in the face of his colleagues’ needs and aspirations.

The thrust of the new spending will go on welfare, pensions and public sector salary improvements – but also to reduce the cost of childcare and third level education for struggling middle class families.

There will also be targeted expenditure to bring relief to low-income groups who are especially exposed, as demanded by the Green Party. But Fine Gael will cede no ground on behalf of the ‘squeezed middle’.

Tánaiste Leo Varadkar warned yesterday that: “Brexit and the pandemic are two seismic events which will be with us for a long time, if not forever.”

Climate change, inflation, Putin’s war in Ukraine, the shift in global economic power and the digital transformation are the next set of “formidable challenges” Ireland will have to face, he said.

Meanwhile, Foreign Affairs Minister Simon Coveney confirmed an autumn bonus social welfare payment was possible, along with a second €200 credit on energy bills.

“The Government’s top priority is to respond to the pressures that families are feeling,” he said. “We haven’t experienced close on 10pc inflation for many decades in Ireland. People are struggling.”

Many on fixed incomes, whether pensions or welfare, were exposed, but so were people who are working, he said.

“Clearly there’s a lot more to do. The budget is going to focus on trying to ease the pressure, while at the same time protecting the economy. But it’s important not to raise expectations too high,” added Mr Coveney.

“The Government isn’t going to be able to reverse inflation with one Budget, but certainly we can do a lot because we have a strong economy.”

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