Budget 2019: A little something for everybody in the audience

Finance Minister Paschal Donohue: Budget will mean higher living standards and falling poverty

Budget 2019, unveiled by Finance Minister Paschal Donohoe, saw good news for social welfare recipients and put some extra cash into taxpayers’ pockets – but dealt hotels, restaurants and hairdressers a tough VAT blow. It is the last budget covered by the Confidence and Supply agreement with Fianna Fáil, and covered all the bases necessary for the agreement to be renewed.

Broadly expansionary in its measures, the total package announced today involved only a small number of regressive measures, including tax increases on tobacco products and betting.

The objective of today’s budget was to give a little to all voters, with various increases delivered to those on social welfare, lower and middle-income earners and over 70s – the latter particularly benefiting through reductions in prescription charges. Equally, the depth of spending measures across the board – from health and welfare, to rural Ireland and Brexit planning – is clearly reflective of a minority government that has had to pay heed to the diverse asks of both the influential independent TDs and the supporting Fianna Fáil party.

 

Our ability to withstand economic shocks in the future needs to be rebuilt

 

Despite our strong economic position, Ireland remains particularly susceptible to external risk. With the UK set to depart the European Union in just six months, and in an increasingly hostile trading environment, significant international risk has built up. In recent months, the Central Bank of Ireland, the Irish Fiscal Advisory Council and the Economic and Social Research Institute have all called for the development of counter-cyclical policies, and the building-up of fiscal buffers. As such, Minister Paschal Donohoe had the dual responsibility of offering budgetary gifts to an expectant electorate, while ensuring that the economy is sufficiently buffered to insulate against external shocks.

Ireland remains among the top-three most indebted economies globally, and the government has announced that in 2019 it will deliver a balanced budget for the first time since 2007 as it seeks to reduce the country’s national debt. That said, following years of under-investment throughout the financial crisis, the government’s focus is on investment in public services and infrastructure over taxation reductions, at a rate of 2:1. This has been flagged as a means of boosting Ireland’s competitiveness and attractiveness in the coming years, as well as building resilience to external shocks.

The looming threat of political instability and the unlikelihood of a full five-year term is also reflected in the political emphasis placed on fixing the two major issues of the day – housing and health. Both crises have been given major financial backing in today’s announcements, with a view to quickly turning the tide of public concern before the country returns to the polls.

 

Record Health Spend

A record budget of €17bn has been announced. This is in addition to the overrun in the health service of €700m for 2018. A combination of political pressure, a desire to make inroads into waiting lists and the need to begin the implementation of the 10-year Sláintecare plan have all contributed to this significant increase. The Minister for Finance was keen to outline the additional funds for disability and mental health services, as well as savings for those on medical cards and paying for prescription charges.
This budget can be seen as the first in an era of reform where the government will look to expand eligibility as part of a move towards universal health care. Evidence of this can be seen in the expansion of free GP care which could benefit up to 100,000 people.

 

Housing Package

Housing remains the most critical issue for the government. Having survived a Motion of No Confidence just last month, Minister Murphy has been given €2.3 billion for 2019, an increase of in excess of €470 million. The sum of €1.25 billion has been allocated for the delivery of 10,000 social homes, with an extra €121 million for the Housing Assistance Payment in 2019 to provide an additional 16,760 new tenancies.
Recognising the challenges many face with homelessness, €60 million has been allocated to fund emergency accommodation, while €30 million is being provided for homelessness services. A €310 million affordable housing scheme has also been introduced towards subsidised homes, while there will be a boost for the country’s landlords with mortgage interest relief rising to 100%.

 

Brexit-Proofing

In the final budget before the United Kingdom leaves the European Union, Minister for Finance Paschal Donohoe has targeted areas of investment which will increase Ireland’s competitiveness and safeguard against external shocks, while also committing €110 million for Brexit-specific project across a number of departments.
In order to increase Ireland’s competitiveness, in 2019 the government will invest 3.5% of national income in capital projects. This compared with an EU average of 2.7 per cent puts Ireland within the top ten countries within the EU for public investment. This represents an increase of 24 per cent on Budget 2018.
The government has also sought to ensure that, from a fiscal perspective, the economy is not exposed, and so will be looking to build up fiscal buffers, through the ‘Rainy Day Fund’. Taking a more long-term approach, Minister Donohoe also announced a €10.8 billion allocation for the Department of Education & Skills, an increase of 6.7 per cent in year-on-year terms.

 

Key Reactions

“As with all budgets, it’s what is not said that is a big part of the story. This budget was the first in a decade that offered a chance to lead Ireland in a new direction. But there is no theme or vision to this weak, spiritless and conservative budget.”
Brendan Howlin TD, Labour Party

“Today’s budget is for booming banks and vulture funds. The government is attempting to buy the votes of the people with the scraps from the table while the real prizes have been given to landlords and those profiteering from the crisis.”
Pearse Doherty TD, Sínn Féin

“Increased reliance on HAP for housing supply will simply drive up competition for the tiny number of properties that are left available. Once again, Fine Gael relying on the market for solutions that it won’t deliver.”
Roisin Shortall TD, Social Democrats

“Economic conditions have been favourable for Ireland in recent years and, as a result, the economic rebound has been stronger and faster than most predicted. When you examine the profile of key risks, we would be naïve to believe this will last forever.”
Michael McGrath TD, Fianna Fáil

“For some time, Ibec has argued that some of the additional resources being created by a growing economy should be allocated for long-term productive investment uses. The increase in capital spending captures that spirit and shows that the government is listening to the concerns of business and citizens about quality of life issues.”
Danny McCoy, CEO Ibec

“He should consider his position as Minister for Tourism at the cabinet table. He has failed on umpteen occasions to help and protect us. Now our members are looking for accountability in a black day for Irish tourism”
Adrian Cummins, Restaurants Association of Ireland