Was the budget designed to help the country’s poorest children or those of the richest?

Charlie McCreevy, the Fianna Fáil minister for finance from 1997 to 2004, famously described his budgetary philosophy as “when you have it, you spend it.”
This Government, blessed with the manna of surging corporation tax receipts falling from the wings of American multinationals, certainly has it. And as yesterday’s budget shows, it is doing its best to spend it.
Perhaps not all of it, with around a third of the corporation tax windfall to be put aside in an assortment of funds with unmemorable acronyms, stashed away for a rainy – or at least a later – day.
But the Government has spent a huge amount in this year’s budget: substantially more than recommended by the Fiscal Advisory Council – set up after the financial crisis to prevent the mistakes of the past – or than the 5 per cent annual spending increase its own fiscal rule – effortlessly broken in each year of its supposed operation – is supposed to limit it to.
Part of the reason that economists have uniformly cautioned against such rapid increases in spending is that it will contribute to higher inflation.
Estimates from the Central Bank suggest that prices are already around 2 per cent higher than they would have been had public spending merely grown in line with the Government’s own fiscal rule.
The effect of this is to reduce the purchasing power of the average household by about €1,000 per year, offsetting the many “giveaways” this spending has funded.
More importantly, such rapid acceleration in public spending runs the risk of having to cut back – maybe sharply – in the event our fortunes turn.
And turn they might. While the Government is currently taking in more money than it spends, this is only thanks to buoyant corporation tax receipts: almost €5,000 per person last year. More than half of these receipts come from just 10 companies, and most of that from just three – almost certainly American – multinationals.
How long this bonanza continues for is not in our control. Rather, we are acutely exposed to the vagaries of American politics and the whims of their next president.
This over-reliance on highly concentrated corporation tax receipts is just one of the reasons it is so important to ensure that we have a stable, broad tax base.
Instead, the Government announced tax cuts with an annual cost of around €2 billion that will further narrow our tax base.
One of the chief culprits here is a substantial cut – costing €540 million per year – in the main rate of the Universal Social Charge (USC) from 4 per cent to 3 per cent. Somewhat ironically, the USC was introduced in the aftermath of the last crisis precisely to broaden the tax base, hollowed out by years of Celtic Tiger giveaway budgets.
In addition, there was the introduction, extension and reannouncement of a host of tax reliefs, many with a dubious economic rationale. For example, €67 million is to be spent on a tax break for reality TV and chatshows that promote Irish or European culture.
Among the other tax cuts announced was an increase in the lifetime thresholds above which Capital Acquisitions Tax applies on gifts or inheritances. The Minister for Finance justified this €90 million tax cut – which benefits a tiny fraction of the population – on the basis these thresholds were last increased in 2019, since when property prices have grown.
Yet despite an impressive sounding €12 per week cash rise in most social welfare payments from January, these will remain below their 2020 level in real terms (adjusted for inflation). In other words, despite five years of strong economic growth, the core rates of social welfare payments will not even have kept pace with price increases over the course of this Government.
Instead, the Government is relying on a number of temporary – previously termed “once-off” – payments to paper over the cracks. While some of these are relatively well targeted at those in need, most are not.
For example, another two rounds of €125 energy credits will land in the door of every household before Christmas regardless of their bank balance, as will two extra months of child benefit for those with children. These temporary payments will all inevitably have to be withdrawn by the next Government. And when they are, there will be consequences for incomes at the bottom of the distribution.
This is particularly concerning given we have already seen progress on reducing income inequality and poverty stall, particularly for children.
Recent ESRI research in partnership with Community Foundation Ireland showed that material deprivation – the share of individuals in households unable to afford two or more items from a list of ten essentials – rose sharply from 17.7 per cent in 2022 to 20.1 per cent in 2023 for children.
Similarly, rates of child income poverty – which capture the share of children living in a household with less than 60 per cent of average income adjusted for household size – have increased in recent years when housing costs are accounted for: up from 20 per cent in 2020 to 22 per cent in 2023.
This is despite a claim by the Minister for Public Expenditure on Tuesday that this Government had “made eradicating child poverty an absolute priority”.
If doing so was such a priority, why was as much spent on cutting inheritance tax – primarily benefiting the children of wealthy parents receiving abnormally large bequests – as was spent on permanent payments targeted towards the poorest children?
Next week the Taoiseach will travel to Washington to meet US president Joe Biden, who is fond of saying: “Don’t tell me what you value. Show me your budget – and I’ll tell you what you value.”
Tuesday’s budget sends a very clear message about what this Government values.
Barra Roantree is Director of the MSc in Economic Policy at Trinity College Dublin