Budget 2023: What’s agreed, what’s outstanding and where the landmines are

Preparations for Budget 2023 are now in the final lap, with finance ministers meeting party leaders this morning to finish up the work. Marathon talks went on into the early hours of the morning (Minister for Finance Paschal Donohoe was still updating his Instagram story from the courtyard of Government buildings shortly after 1am).

With finishing touches now being applied, here’s what you need to know about what’s agreed, what’s down to the wire, and where the political risks are for the €10 billion budget.

(Early) budget surprise

Minister for Education Norma Foley managed to secure a big win with free schoolbooks for primary school children. This measure was not trailed in the media until the last minute and is generating a lot of attention this morning.

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The devil, as with all these things, will be in the detail of the plan, which will see the department fund schools to purchase books. Doubtlessly there will be rows over the adequacy of this funding, but the Opposition was cautiously welcoming of the measure, with Labour TD Aodhán Ó Ríordáin (who has consistently called for this) saying it looked like a “positive move”, although the party is critical of secondary school children not being included. She has also secured around €10 million for the schoolbus fiasco, which may alleviate some of the pressure she was under. The 24:1 pupil-teacher ratio is due to come down as well. Her Junior Minister Josepha Madigan has secured another 370 special classes, 1,194 special needs assistants and 686 special needs teachers.

Renters benefit but risk for Government

Last year’s budget contained nothing for renters, and the cataclysmic state of the rental market meant the political momentum to deliver something was strong. The proposal that went to the leaders last night envisaged a tax credit worth €200 for 2023, which could be doubled with additional money this year or indeed next. That will be a political decision and the case is strong for being as generous as possible – because even at the upper end of that range, the concession will likely be dismissed as inadequate by the Opposition. Sinn Féin has been calling for a month’s rent back in tenant’s pockets – €400 is a long way short of that, and a lot less than previous iterations of tax credits for renters.

Landlords also risk being disappointed with resistance to straight up tax breaks on rental income in the Department of Finance. Something else may be conjured, such as allowances for pre-rental investment, but it may underwhelm and not cure the “exodus” from the market.

Childcare

There were nerves about this one among some in Government on Sunday. The word is that Minister for Public Expenditure Michael McGrath has been relentlessly pushing his Cabinet colleagues towards once-off measures, with room for manoeuvre on permanent spending increases a lot more limited than the headline budget figures would suggest.

The fear was that childcare would get caught up in this trend – despite the promises to do something meaningful this year from across the Coalition for many months. It doesn’t seem to be the case: McGrath brought a deal to the leaders, agreed with Minister for Children Roderic O’Gorman, that would see fees cut on average by between 20 and 25 per cent.

When this kicks in has not been decided, but sources were pointing towards January 2023 last night. Things to watch: there’s a huge amount of complexity in the childcare system, with the core funding programme from last year’s budget only really getting into its stride now. There is a lot of variance across the childcare system with different models of care, hours offered, and subsidies even within crèches themselves – and childminders and others not covered by the National Childcare Scheme are likely to find themselves outside the terms of this scheme. The privatised nature of service provision means there’s a big clunky apparatus that disintermediates and complicates policy changes, but expectations will be high among hard-pressed parents for a tangible reward soon.

Presuming the agreed policy looks like the submitted plan, it’ll be a budgetary win for O’Gorman but the hard policy work will have to start now.

Welfare hike strife

The big bit of unsettled business. Minister for Social Protection Heather Humphreys ruled out a €20 hike in core payments on Sunday, but appeared to be making a last stand on €15 at a cost of upwards of €1.1 billion – the Department of Public Expenditure is thought to favour a raise closer to €10. One Government source observed last night that given the demands of anti-poverty NGOs of €20 plus to keep up with inflation, coming back with a €10 increase would be “political suicide” for Humphreys. That may be a touch dramatic, but it appears to be one of the major bones of contention in the final hours.

A higher increase would have implications elsewhere, most immediately in the welfare budget itself, leaving less money for permanent increases to targeted measures sought by the Green Party for households most at risk of deprivation and consistent poverty. This can be partially offset with once off measures targeted at the same payments (working family, living alone, fuel allowance, etc), but the risks are plain to see and increasingly it looks like there will be fallout no matter what option is chosen. The received wisdom is that the landing zone is between €10 and €15, but this is unlikely to fully satisfy anyone.

The final composition of the welfare budget will probably play into the structure of wider one-off measures for families. A double payment of child benefit is likely, but there is talk of a “cost of living family payment” which might comprise this or other measures. This is where most uncertainty seems to be on the eve of budget day.

BESS and energy for business

A new scheme to help SMEs out with their energy bills has political support and there’s budget there for it, with talk of all or most firms being eligible. But sources said the situation became more complicated, not less, as support grew. There were hopes this could be done by the energy regulator or through the Department of the Environment, but they came to nowt.

The chosen route is now through the Revenue Commissioners, but how exactly eligibility is assessed and payments channelled to firms is proving a headache. Revenue can see firm’s profits, but not in real time, and the pressure is on firms now – not when their next tax bill is due. Some Coalition sources were talking on Sunday about companies having to send in energy bills to have payments approved. Whatever is agreed, it’ll need to have sufficient firepower and be effective or else the risk of blowback is clear.

There will be no price cap for firms or households, and while Donohoe is expected to signal Irish openness to a windfall tax and willingness to go it alone if pan-European efforts fail, for now the focus is on whether Brussels can come up with a solution that enables a cash raid on corporate income.

Household energy bills

This one seems to be settled business. A €600 split across either two or three payments either side of Christmas. It’ll cost €1 billion plus, going on the cost of previous measures, and will attract criticism for its universal nature – but that same universality means it’ll probably be widely welcomed by voters themselves, even if it inevitably results in inequities benefiting millionaires and those with second homes the same as truly hard-pressed households.

Tax

The headline measure here looks like a shift in the entry rate for the top rate of tax towards €40,000 from its current level of €36,800, which will benefit middle-income earning households.

Healthcare

An 11th hour deal was struck before the leaders meeting, upping the amount on offer to Stephen Donnelly by €50 million to €1.15 billion in additional funding. It has to cover the increasing cost of existing services too, though, meaning not all his priorities will be funded this year. Hard choices beckon for the Wicklow TD with some groups doubtlessly going to be let down. Covid money will be allocated to pay for backlogs and waiting list actions.

VAT and excise

It looks like the tide is going out on the 9 per cent VAT rate for hospitality, after tempestuous exchanges between Donohoe and the industry over allegations of price gouging in the run-in to the budget. There is backbench pressure to keep it, but last night the word was that no proposal to extend it went to the leaders. Barring a political reprieve, its days seem numbered. Cost of living excise and VAT cuts to fuel will be extended across the home heating season.

University Fees

Minister for Higher Education Simon Harris has sought up to €500 off the student registration fee. This would be a welcome cost of living measure, but it will open up a debate about the Exchequer making up the difference. The Minister is also seeking increases in SUSI grants.