- Summer Economic Statement published today
- Budget 2023 will focus on cost of living with overall package of €6.7 billion
- Additional public spending will amount to €5.65 billion and taxation measures will amount to €1.05 billion
- Core spending will increase by 6.5% in 2023
- Today’s Exchequer figures show that tax revenues to end-June were €36.9 billion;
- While this was 25 per cent higher than last year, this is driven by very strong growth in volatile corporation tax receipts and is also flattered by a number of factors, including a stringent lockdown in the opening months of last year;
- Total gross voted expenditure to end-June amounted to €38.5 billion, €1.4 billion or 3.5 per cent below the same period in 2021;
- An Exchequer surplus of €4.2 billion was recorded in the first half of the year;
- On a 12-month rolling basis – a better measure of underlying trends – the Exchequer recorded a surplus of €2.1 billion in June.
The Minister for Finance, Paschal Donohoe TD, and the Minister for Public Expenditure and Reform, Michael McGrath TD, today (Monday) published the Government’s Summer Economic Statement 2022 (SES). This document sets out the Government’s medium-term budgetary strategy and outlines the fiscal parameters within which discussions will take place ahead of Budget 2023.
In last year’s SES, the Government adopted a medium-term budgetary strategy based on public expenditure growth of 5 per cent per annum over the medium-term. This was designed to meet the dual objectives of investing in the productive capacity of the economy, while putting the public finances on a more sustainable trajectory. Annual increases in spending were anchored to the economy’s estimated trend growth, taking into account an assumed inflation rate of around 2 per cent.
Reflecting the less benign inflationary environment, and especially the impact of higher energy prices on the most vulnerable groups, the Government is now adapting the strategy – on a once off basis - in this year’s Summer Economic Statement. To protect public services and incomes, core spending will now increase by 6.5 per cent next year. Over the medium term (2024-2025), as inflation pressures moderate, core expenditure growth will be allowed to return to a rate of 5 per cent per annum.
Budget 2023 will provide for an overall package of €6.7 billion; this has been calibrated to balance the need to provide further support with the need to avoid adding to inflationary pressures.
The overall package will be composed of additional public spending amounting to €5.65 billion and taxation measures amounting to €1.05 billion. This is an increase of €2.2 billion relative to what was originally provided for, and will ensure that fiscal support is provided to households to help with the higher cost of living.
The Department of Finance also today published the Exchequer Returns for the first half of the year.
An Exchequer surplus of €4.2 billion was recorded at end-June 2022. This compares with a deficit of €5.3 billion in the same period last year. The €9.5 billion improvement in the Exchequer balance was driven by strong growth in tax revenue and a decline in Covid-related expenditure.
Tax receipts amounted to €36.9 billion in the first half of the year, up €7.4 billion (25 per cent) on an annual basis. The annual increase is, however, distorted by the stringent level-5 restrictions that were in place in the first quarter of last year as well as a number of other technical factors.
At €14.3 billion to end-June, income tax receipts were up 17 per cent on an annual basis, reflecting the rapid recovery in the labour market.
Corporation tax receipts amounted to €8.8 billion in the first half of the year, up by €3.0 billion relative to last year. The annual increase in corporation tax reflects the continued strong momentum in activity in the multinational sector, in particular, the ICT and pharma sectors.
VAT receipts in the first half of the year were €9.1 billion. This was an annual increase of 26 per cent and reflects much higher levels of consumer spending relative to the same period last year when contact-intensive activity was at very low levels. In addition, VAT receipts are boosted by the impact of tax warehousing last year and the standard rate of VAT was also lower in the opening months of 2021. That said, VAT receipts to end-June were 22 per cent higher than the same period in 2019 (i.e. pre-pandemic).
At €2.6 billion to end-June, excise duty receipts were up just 2 per cent on an annual basis. The weaker performance of excise reflects, in part, Government policy introduced to tackle increases in the cost of living as well the negative impact of rising energy prices on the volume of excise-related consumption.
Total gross voted expenditure to end-June amounted to €38.5 billion, €1.4 billion or 3.5 per cent below the same period in 2021. This is driven by a decline in expenditure in the Department of Social Protection due to the impact of Covid restrictions in early 2021 and the resulting increased expenditure on supports for people and businesses.
Health expenditure in the first half of 2022 reached almost €11 billion. This is a significant increase in current expenditure on the same period of 2022 of €1.2 billion and reflects additional investment and measures implemented as part of the Covid response.
Gross Voted Capital expenditure at end June amounted to €2.7 billion, an increase of €228 million or 9.2 per cent in comparison to the same period in 2021. This reflects continued investment in our infrastructure, including housing, education and transport infrastructure.
On a 12-month rolling basis — a better indicator of the trend — the Exchequer recorded a surplus of €2.1 billion in June.
Speaking today, the Minister for Finance, Paschal Donohoe T.D. said:
“Budget 2023 – ‘A Cost of Living Budget’ will provide for an overall package of €6.7 billion with additional public spending of €5.65 billion and taxation measures amounting to €1.05 billion. This tax package is double the amount set in the original strategy and, once again, reflects the need to adjust the parameters given the higher-than-assumed inflation. A key objective of taxation policy in Budget 2023 will be to avoid workers paying additional tax simply because they move through higher tax brackets because of inflation.
Today’s exchequer figures show that tax receipts remained robust in the first half of this year. The continued strength in income tax, in particular, is a positive signal of the recovery in the labour market. However, the strength of volatile corporation tax receipts provide an artificially positive picture of the state of the public finances.
It is also important to stress that today’s figures are, of course, backward looking. We expect economic activity and the public finances in the second half of this year to be negatively impacted by the war in Ukraine, the decline in real purchasing power and increased uncertainty in the international economy.
There is mounting evidence that the economic momentum that we had seen in the Irish economy since the easing of public health restrictions is now slowing. The economic impact of further disruption to gas supplies in Europe would have a negative impact on businesses and households across the country.
It is now imperative that we build more resilient public finances. The Government has acted with determination - and will continue to do so - to help support households over the past few years. However, the interventions to-date have come at a significant cost to the Exchequer.
The Summer Economic Statement, published today, takes these factors into account and sets out the Government’s adapted budgetary strategy, which will help to protect core public services while ensuring that budgetary policy does not become part of the inflation problem.”
The Minister for Public Expenditure and Reform, Michael McGrath T.D. said:
“Government budgetary plans are being supported by continued strong performance in the Exchequer returns. As we have seen throughout the Covid-19 period in particular, our public finances have remained resilient. Ensuring this continues to be the case is a key priority.
Today’s figures show spending of over €38.5 billion in the first half of the year. This reflects continued support of the Health sector in dealing with the challenges of Covid with expenditure of almost €11 billion at end June, while Social Protection expenditure of €12 billion reflects the significant supports put in place in response to the omicron wave of the virus.
As we enter the second half of the year, we are faced with significant challenges including the provision of humanitarian supports for refugees arriving from Ukraine and continuing rising prices across the economy. The Government is acutely aware of the pressures these price increases place on households and businesses.
Today’s publication of the Summer Economic Statement outlines the Government’s budgetary strategy which will seek to protect public services, allow us to introduce further measures to address the cost of living pressures in the autumn, and at same time maintain fiscally sustainable expenditure into the medium term.”
ENDS ContactAidan Murphy – Press Advisor to Minister Donohoe, Department of Finance – 085 866 6667
Morgan Dwyer – Press Officer, Department of Public Expenditure and Reform – 086 815 9845
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