Budget 2025
Pre-election bribes take priority over investment
7 October 2024
Finance Minister Jack Chambers and Minister
for Public Expenditure Paschal Donohoe.
Budget 2025 had been trailed in the media for a long period so its content didn’t come as a surprise. The expectation of a budget filled with pre-election sweeteners was duly fulfilled. If anything, the speculation surrounding the various one-off give-aways were underestimated. For example, the value of the so-called cost of living package that accompanied the regular budget, was significantly higher than what had been trailed. With the rate of inflation falling, it was expected that such financial supports would be scaled back. The figure being put around pre-budget was for a package of around €1.5 bn but it actually turned out to be €2.2 bn. This was only slightly down on the €2.3 bn package that was part of last year’s budget when the rate of inflation was much higher. All this is evidence of a budget being shaped by electoral rather than fiscal considerations.
Budget 2025 actually breaches the government’s own rules on expenditure. This was confirmed by the official watchdog the Irish Fiscal Advisory Council. Its assessment found that the budget (once again) breaches the government’s own rule that spending should not increase by more than 5% a year. It calculates that spending will increase by more than 9% this year and just under 6% next year. Overall, the cumulative breaches of the net spending rule since 2022 are "substantial" with total spending at least €12.5bn above what the rule would have allowed by 2025. The Fiscal Advisory Council said that the measures outlined in Budget 2025 would add to inflationary pressures and widen an underlying budget deficit. It warned that without a “a more serious vision that delivers on the economy's needs” Ireland risked “repeating the boom-to-bust pattern of its past".
Budget details
The broad parameters are the regular budget and accompanying cost of living package. The budget amounts to €8.3bn, comprising €1.4bn in tax cuts and €6.9bn in new spending, while the one-off cost of living supports are worth a further €2.2bn.
Social Welfare
The budget contains a social
protection package worth almost €2bn. Measures include double
payments for some social welfare recipients in October; a €12 increase
for those receiving the weekly Social Protection payment; a lifting of
the level at which carer's allowance is means tested to €625 for a
single person and €1,250 for a couple; and increases in the domiciliary
care allowance by €20 and the carer's support grant by €150 to
€2,000
Cost of living
The cost-of-living package
includes an energy credit of €250 for all households to be paid in
two equal payments, one before the end of 2024 and one after; a proposal
for the 9% reduced VAT rate for gas and electricity to be extended for
another six months to April 30th 2025; a further €300 lump sum payment
to fuel allowance recipients in November; and an
additional €200 for
recipients of the living alone allowance
Housing
Measures in relation to
housing include a rise in the rent tax credit offered to tenants from €750
to €1,000, and to €2,000 for a jointly assessed couple; the allocation
of an additional €1.25bn to the Land Development Agency; an extension
of the Help to Buy scheme until the end of 2029; and the extension of relief
on pre-letting expenses for landlords for three years until the end of
2027.
Tax
The Universal Social Charge
rate will see a second consecutive reduction, while there will also be
increases to the main tax credits. The USC will be cut from 4% to 3% on
incomes of €25,000 to €70,000. The main tax credits - the Personal,
Employee and Earned Income Credits - will increase by €125.
The Standard Rate Cut Off Point will increase by €2,000 to €44,000.
The threshold for Inheritance tax is to be raised for all categories of
estate.
Education
The free schoolbook initiative
will be extended. Free schoolbooks initiative extended to transition
and senior cycle pupils. Funding to continue for the school transport
fee reduction and State exam fee waiver. Continued reduction of student
contribution fee by €1,000. A Once-off reduction of 33% in the contribution
fee for apprentices in higher education. And a post-graduate tuition fee
contribution increase of €1,000 for student grant recipients
Health
Budget 2025 includes funding
for a range of new measures. The creation of 495 new beds in health
services across hospital and community services. Increased access to IVF
and Hormone Replacement Therapy to be free of charge. And a plan to increase
the number of staff working in the health service.
Most elements of the budget and cost of living package are one off payments. That these are being front loaded to the end of this year and early next year is further evidence that they are primarily geared around an expected early general election. Where the budget is underpowered is in areas, such as housing and health and social care, which require sustained and long-term investment. The government claims that corporation tax windfalls are “transformational” but they won’t be if they can’t be used for day-to-day spending.
Surplus
On the face of it the financial position of the Irish state appears to be contradictory. It is running a substantial budget surplus (€25bn this year) yet is unable to use it to introduce reforms, particularly in housing and healthcare, that would improve the lives of Irish citizens. However, when we examine the structure of the Irish economy, we see that there is no contradiction at all.
The Irish state is accumulating tax revenue primarily by operating as a tax haven for multinational capital. There are huge flows of capital moving through Ireland in order to avoid tax. While the Irish state only skims a small percentage of this in the form of corporation tax the huge volume of capital relative to the size of the economy produces significant revenues. Over the last decade corporate tax revenues have exploded, jumping from €4.4 bn in 2015 to an expected €29.5 bn this year (not including the Apple windfall). The receipts, mainly paid by a handful of US multinationals, make up 28% of all tax collected in Ireland each year. When it comes to tax revenues there is a high level of dependency and concentration. It is also worth noting that much of the corporation tax revenue is “unearned” in the sense that it is not linked to economic activity in Ireland but siphoned away from other EU states. This was what was revealed by the ECJ ruling on the case brought against the Irish government and Apple.
Irish capitalism
The Irish state puts itself completely at the service of US multinational capital not just in terms of taxation but also in terms of a broad government programme. Every policy in every department, from education, to health and to housing, is geared around the needs of multinational capital. This is why there cannot be anything approaching social democratic reforms in Ireland. Public provision of healthcare and housing, which would depress profits and rents, has already been ruled out. The only things left are the one-off payments which people can use to purchase services from private providers and the various boondoggles which are supposed to leverage investment from private finance. These are effectively subsidies to capitalists and landlords.
While the Irish economy may appear to be robust there are serious weaknesses. The first of these is the tax haven model itself which is highly vulnerable to a global recession or the even more devastating economic impact of a major war in Europe or the Middle East. With the prospects of conflict rising the record corporate tax revenues being generated today are likely to be a temporary phenomenon. The second is the underlying weakness of indigenous capital. This is exposed by the huge gulf between Ireland’s GDP and GNP figures which has seen Irish statisticians having to create new measurements to gauge the size of the economy. This has been labelled as Leprechaun economics. Such ridicule has bite because it highlights the reality of Irish capitalism as being unproductive and dominated by rent seeking activity.
The recent media stories about the extortionate costs of bike sheds and modular homes are evidence of this. The modular homes story is particularly illuminating as it exposes not only the parasitic character of the local capitalists but also the severe limitations of government housing policy. The construction of modular homes could be part of a strategy for tackling the broader housing crisis, providing accommodation not only for refugees but also for Irish people. Yet their use was restricted to the subsection of the population who are Ukrainian refugees. This is no accident. This is mainly down to the refusal of the government to do anything that impinges on the private housing market. But another part is the decision to create a special category of refugees to signal support for NATO’s proxy war against Russia. This is an example of where politics and economics overlap. It is no coincidence that the more Ireland is dominated by US multinational capital the more it has subordinated itself to the political and military imperatives of US imperialism. At this point the Irish state is a de facto member of NATO and an active participant in the wars in Ukraine and the Middle East.
Imperialism
It is notable that the budget met with hardly any substantial criticism. It was welcomed by ICTU, while the parliamentary opposition, from Sinn Fein to PbP, were reduced to calls for minor modifications. The assumptions underpinning the budget, of the Irish state acting as a tax haven and one-off payments as a substitute for real reforms, go unchallenged. The domination of the Irish economy by US multinational capital, and the political consequences that flow from that are ignored. Rather than face the reality of imperialism we have the illusion of Ireland as a small capitalist state in which the government has a free hand to determine its own programme. This is a serious misunderstanding of Irish society and the obstacles to the reforms the socialist parties say they would want to be brought forward by a future “left government”. There can be no reforms, no matter how moderate, in an economy dominated by imperialism. This is the core message of Budget 2025.