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Record €6.7bn extra in Budget for tax cuts and welfare hikes to tackle cost-of-living crisis

In an unprecedented move, a specific cost-of-living package will be unveiled on September 27


Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath

Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath

Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath

Record levels of Government spending on tax cuts and welfare increases are being planned for the Budget to address the growing cost-of-living crisis.

The Government is taking a two-pronged approach to the financial crisis impacting households across the country by introducing an immediate package of measures on Budget day, followed by tax reductions and increases to welfare payments such as the pension and jobseeker’s allowance in the new year.

In an unprecedented move, a specific cost-of-living package will be unveiled on September 27, the new day for the Budget.

This will be separate to the Budget itself and will include a series of one-off measures which will be paid for using tax surpluses raised this year, mostly from high levels of corporation tax.

The measures, expected to include a double welfare payment and a further electricity credit, are aimed at helping those most impacted by historic levels of inflation.

Separately, Finance Minister Paschal Donohoe has decided to abandon his own budgetary restrictions to spend an additional €6.7bn from the State’s coffers next year.

Yesterday, Mr Donohoe and Public Expenditure Minister Michael McGrath outlined details of their Budget spending parameters as they unveiled their Summer Economic Statement.

The Budget will include a tax package worth more than €1bn and will allow the Government significant leeway to increase the entry point for the top tax rate and enhanced tax credits.

However, the minister will also have to use this money to continue VAT and excise reductions on fuel into the new year.

Government sources warned there may not be room for major income tax cuts if the VAT and excise cuts continue.

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Another €2.7bn will go on new measures such as welfare hikes, public sector pay increases and investment in services such as childcare and education.

The remaining €3bn will be used to pay for capital spending commitments under the National Development Plan and existing public sector pay deals, along with addressing demographic changes which have increased the level of Government spending to keep services in place.

The Budget will be a 6.5pc increase on last year’s spending, which is above the 5pc threshold set by the Government for new measures.

The total spend to run the country next year will be around €90bn and comes at a time when the national debt is more than €230bn.

The Government has also earmarked €4.5bn in “temporary spending” to address the challenges posed by the Ukraine refugee crisis and ongoing funding needed to address the Covid-19 pandemic.

Despite the record levels of spending, the Summer Economic Statement did raise concerns about the State’s reliance on corporation tax receipts.

It warned “evidence is mounting that economic momentum is slowing”.

It also said exiting the pandemic has “not been entirely” smooth. “The rapid recovery in demand has run up against supply (capacity) constraints, putting upward pressure on prices. The step-change in energy prices on foot of the Russian invasion of Ukraine has worsened the inflation situation,” it added.

Mr Donohoe said the Government is “ready to act” to help struggling households.

“A key part of the challenges that households and businesses are facing all over our country, and Minister McGrath and I are fully aware of the challenges that they have posed for so many, is what we have seen with rising prices, and what that means for our standard of living,” he added.

Labour finance spokesman Ged Nash said the windfall from corporation tax revenues “must be put back into the pockets of those who need help the most”.

“The best way to support working households is not through tax cuts and a narrowing of the tax base but to provide targeted supports such as including more families in the Back to School Allowance and fuel allowance scheme through our sophisticated welfare and tax system, and cutting childcare costs for working parents,” he added.

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