The government announced a 180-degree turn in the Exchequer's finances on Wednesday evening, reporting a €5bn surplus for the first seven months of the year after recording a €5.7bn deficit during the same period last year.

The €10.7bn swing was driven by a €3bn increase in the corporate tax take and a €2.2bn increase in VAT, reflecting greater spending and rising inflation, while Exchequer spending fell by just under €5bn as Covid supports were unwound.

On a 12-month rolling basis, the Exchequer surplus stands at €3.4bn, and with less than two months until Budget 2023, there will be additional calls for additional government assistance from all sectors of the economy and society.

Cost of living measures

The budget has already been moved forward from its traditional mid-October slot as the government came under pressure to announce additional measures to tackle the cost of living crisis.

It is now expected that the government will make the cost-of-living package in next month's budget more generous as a result of the Exchequer surplus.

In Association with

Additional spending of €6.7bn has already been earmarked for budget day, but the government could extend fuel rebates energy credit, public transport fare reductions and free GP care, reduce student fees, and announced social protection bonuses.

Increase social protection payments

Minister of State Joe O'Brien this week said pensions and social welfare payments could be benchmarked against wages or inflation, similar to Britain where the "triple lock" guarantees that pensions rise at either 2.5%, or the same rate as wages or inflation, whichever is higher.

Linking social protection payments to inflation would bring Ireland into line with a number of European countries and create "a protective tool for those dependent on welfare payments," according to O'Brien.

Discussions about doing so for jobseekers, disability and pension payments are reportedly underway in the Department of Social Protection, and have been backed by a number of interest groups.

Pay down debt/refurbish rainy day fund

The Central Bank on Wednesday announced that the state's debt now stands at €239bn, declining €10bn since the start of the year as the government paid off long-term debt securities of €8.4bn and short-term debt securities of €2.3bn.

The national debt was as low as €204bn immediately before Covid, and Central Bank figures show the level jagged up and down in recent years before the recent surge in borrowing to tackle the pandemic, and the government will surely continue to pay it down in the coming year.

The €1.5bn rainy day fund established in the years leading up to Covid has been depleted by the pandemic, and Minister for Finance Paschal Donohoe said this year that no deposits would be made this year, but it might be an idea that returns to the agenda in future, especially considering concern about the state's reliance on corporation tax receipts.

Capital gains tax

Pre-budget submissions from business groups have been made public in recent weeks, with both the Dublin Chamber and ISME calling for reductions in capital gains tax to encourage free enterprise and help SMEs raise capital to overcome supply chain issues.

At present, the standard rate of capital gains tax is 33%, and interest groups want it lowered to 20-25%, with ISME claiming that a reduction to 25% would raise an additional €500m annually and Dublin Chamber wanting investors to be able to buy shares in local companies without being taxed like they are buying into Apple.

With income tax receipts rising 17% and VAT receipts up by more than a quarter (26%) year-on-year and tax receipts overall €8.3bn ahead of the same period in 2021, expect the calls to spend to become louder in the coming weeks.

Photo: Paschal Donohoe speaking in Government Buildings. (Pic: Sam Boal/Rollingnews.ie)