Editor’s Note
Ministers Paschal Donohoe and Michael McGrath can’t do anything about the idiots who refuse to take the Covid vaccine and then clog up hospitals at public expense, but they’re certainly doing their bit to pump-prime the economy. Budget 2022 provides for another huge surge in public spending, though a lot of what goes out the door will come straight back in taxation. The ministers have stuck to their word in providing a soft glide path for enterprises still wedded to wage subsidies. There’s no change in the Employment Wage Subsidy Scheme until the start of December, when the supports will be reduced. Further cuts will follow in March, until the scheme terminates at the end of April, by which stage the post-Budget wage subsidies will amount to another €1.3bn.
For individual taxpayers, alterations to tax bands and the tax credit will improve collective takehome pay by an estimated €520m. That sounds generous, until you consider that Donohoe expects that the yield from income tax next year will be €4,600m more than before the pandemic, in 2019. For Value Added Tax, the projected yield for 2022 is €1,760m more than in 2019. That 11.6% increase will be partly due to hospitality and tourism VAT reverting to the 13.5% rate from next September. Even though the Exchequer is flush with cash, it can never resist going back for more.
Ireland’s tax revenues in recent years have been extraordinary. The 2021 outcome is expected to be €7.5bn more than two years ago, up 12.8%. For 2022 the objective is to haul in an additional €4.1bn in taxation, compared to this year’s total. That would result in a 20% increase in the tax burden on the economy in just three years.
All this money is required to fund the explosive growth in public spending. Current and capital spending by government departments in 2022 is budgeted to be €20bn above the 2019 outcome – an increase of 30%. Public spending is so ambitious that buoyant tax revenues can’t keep pace, so for 2022 Donohoe is budgeting to add another €7,700m to the national debt.
What all this means for business is more money sloshing around the economy. Consumer spending has already recovered to pre-pandemic levels, and by the end of 2022 it is predicted to be c.7% ahead of the pre-Covid level. The way Donohoe sees things, Ireland’s economy is a virtuous circle of extra spending generating more taxes, so much so that the budgetary position will be back in balance by 2024. What could possibly go wrong?
Nick Mulcahy Editor