Finance Minister Micheal McGrath has once again ruled out further cost of living measures until the Budget, despite a forecasted €10bn budget surplus for the year.
He also appeared to warn that Budget 2024 will not be as generous as last year’s €11bn package.
Officials in the Department of Finance now believe that inflation rates will fall “fairly dramatically” in the second quarter of this year and will be two percentage points less than expected.
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However, Minister McGrath said that while inflation has peaked, Ireland is not “out of the woods” yet.
The Stability Programme Update (SPU) published on Tuesday afternoon predicted a €10bn Budget surplus for 2023. Next year's surplus is calculated at €16bn.
However, John McCarthy, chief economist in the Department of Finance, warned that a large proportion of this is made up of corporation tax receipts.
Without corporation tax, Ireland would have a deficit of €1.8bn.
Despite the high surplus, Minister McGrath, as well as Public Expenditure Minister Paschal Donohoe, both indicated that Budget 2024 will not be as large as last year’s €11bn package, which included €4bn in one off cost of living measures.
Minister McGrath explained: “I have made it clear that the February package of supports will be the last cost of living intervention until the Budget and why the government has taken the decision to gradually phase out the reduced rate of tax on fuel over the months ahead.”
He noted that while inflation was expected to be 7% on Budget day at the end of September, it is now expected to fall to 4.9%.
He noted that while inflation appears to have peaked, Ireland is “not out of the woods” yet.
When asked if people can expect another generous Budget next autumn, Minister McGrath appeared to temper expectations.
He said: “If you look back at last year, we had a package worth about €11 billion [for the Budget], just under €7bn of it was core [expenditure] and just over €4bn was once off in nature.
“That was in an environment where inflation last year averaged 8% across the year. [It is] certainly going to be lower than that this year and lower again the year afterwards.
“We have to consider the context within which we will be making budgetary decisions. We do have an expenditure rule. We made an adjustment to that rule last autumn, given the very high level of inflation that we were dealing with.”
Minister Donohoe, meanwhile, said that the decision to break the 5% spending rule for the Budget was “not a permanent decision” and will have to be reversed.
Mr McCarthy and Minister McGrath also warned that the figures include high levels of corporation tax and assume that there will be “no shock” to these amounts.
The Minister is expected to bring proposals for a longer-term fund for what is being described as “windfall” corporation tax receipts in the coming months.
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