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WE ARE a couple of days away from this year’s budget, and Finance Minister Paschal Donohoe has a lot of work ahead of him.
The government now forecasts a deficit of 21 billion euros or 6% of national income for this year.
For last year’s budget, the minister downplayed the gift expectations, telling everyone around him that he will be “safe” and “cautious” due to the possibility of a no-deal Brexit on the 2020 horizon.
A year later, Donohoe has to contemplate the exact same scenario, but it also has the added pressure of a pandemic.
In the days leading up to the 2019 Budget, the entire conversation surrounded the stalemate over Irish backing. On Tuesday, when Budget 2021 is announced, Donohoe must strike the right balance between the country’s long-term financial situation and provide the necessary supports for those out of work due to Covid-19 restrictions.
Earlier this month, Ireland posted a fiscal deficit of almost € 9.4 billion in the year to the end of September.
The total disclosed by the Finance Department compares with a surplus of 38 million euros in the same period last year.
It’s a “very, very large deficit,” Donohoe has said.
So what can you expect?
The budget will include details of a significant recovery fund to deal with the ongoing impact of Covid-19. The government is also working on the assumption that there will be a no-deal Brexit and that a vaccine for Covid-19 will not be available next year.
According to the program for the government, the priorities in the 2021 Budget, in addition to Brexit and Covid-19, will be health, housing and climate change.
The government expects to spend up to € 9 billion on Covid-19-related expenses next year.
Public Spending Minister Michael McGrath presented a spending strategy memorandum to Cabinet ahead of the 2021 Budget last week.
Around 900 million euros will be spent to satisfy existing services in all areas. This is in addition to the € 1 billion earmarked for previously committed current expenses and a € 1 billion increase in capital expenditures next year.
The government also raided the Rainy Day Fund. It was designed for use in emergencies. Using that framework, it was decided not to use it for Brexit or housing last year, so the fact that it was emptied this year says a lot about where we are at.
Income tax
There will be no increase in income tax in the 2021 budget, Donohoe said.
“Our personal tax receipts hold up pretty well, and in terms of what that says about our economy, it tells me that momentum is building in our economy,” he added.
“In terms of the 2021 budget, September is always an important month in terms of tax revenue and is the final piece of the puzzle before making a call on what our tax collection will be for the year and the budget for the following year,” he said the minister said last month.
The government program also promises not to increase the Universal Social Burden (USC), although there could be some adjustments in the bands.
In terms of VAT, the hospitality sector has been calling for more cuts in light of the pandemic. The government backed away from him in recent years, but significant pressure has been put on representatives that he could get the green light.
Social welfare
There has been unprecedented spending by the government on health and social welfare as a result of the pandemic, and there should be other major announcements on Tuesday.
There have been calls to restore the Pandemic Unemployment Payment to its initial level of € 350 per week, but the government seems adamant that doing so would hamper the extended period of time the payment must last.
Changes and adjustments in the scheme are likely, perhaps sector by sector, with additional support for those working in the areas that have been most affected.
The Taoiseach said TheJournal.ie that some workers could take jobs and withhold their pay at the same time.
Pressure has increased on the government to help various people in areas such as hospitality, tourism, entertainment and the arts.
Publishers, bar workers, DJs, comedians, actors, cinemas, event organizers, taxi drivers and those in the concert economy have been calling for additional support after their businesses were mandated to close their doors.
The Taoiseach said “creative” thinking has been going on behind the scenes to figure out how to support those workers, particularly through the welfare system.
As for the state pension, an increase of € 5 has almost become common, but this year the bump may not be seen.
No decision has been made at this time on the Christmas bonus, and McGrath says the treasury is in a very tense position right now. However, its cancellation would be a complicated maneuver for the government.
The Work Wage Subsidy Plan (EWSS) will extend beyond March 31, 2021, its current scheduled end date.
There will be no estate tax, Donohoe said as well.
Green initiatives
The carbon tax increased by six euros per tonne last year, so there will be another increase again on Tuesday.
Donohoe said it will be bounded to protect those at risk of energy poverty. He also said that the funds will be used to advance the adequacy of homes for energy efficiency.
All eyes will be on gasoline and diesel prices next week, and companies are likely unhappy with the added costs as they struggle to stay afloat.
No news is bad news
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The Government will spend 1 million euros a day on improving the infrastructure for cyclists and pedestrians, and in terms of electric vehicles, there will be commitments to increase the deployment of charging points.
Be on the lookout for renewable energy grants and modernization plans, too.
accommodation
Housing Minister Darragh O’Brien wants to expand Ireland’s Buying Assistance program, which provides a tax rebate of up to € 30,000 to first-time buyers. Social housing will also be part of the key budget announcements next week.
An affordable housing plan was supposed to roll out last month, so there may well be news of this on Tuesday, perhaps the good news of the day.
Brexi
The government also has to plan for the worst, so significant resources are likely to be allocated to the sectors that will be most affected by a no-deal.
While the July stimulus implemented loan and grant schemes, more announcements are likely to be made on similar topics.
Alcohol and cigars
With the government literally watching from the back of the couch for pennies, cigarettes are almost certain to be on the rise next week. However, some questions remain as to whether there will be an increase in alcohol consumption given the precarious position in which publicans have been placed in recent months.
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