Parliamentary Budget Office (PBO) publishes its Pre-Budget 2023 Commentary

This commentary provides Members of the Oireachtas an overview of the current fiscal position and the macroeconomic circumstances that frame the budget and highlights key issues for consideration ahead of Budget Day. You can read the full report here: Parliamentary Budget Office Pre-Budget 2023 Commentary

Budget 2023 will be a cost-of-living budget. The Government is facing exceptional circumstances – coming out of a pandemic, a war in Europe, with consequent energy and supply chain issues, and inflation rates not seen since the 1980s. Inflation has not just been seen in energy and food prices - inflation which excludes these is also rising. The cost of electricity, home heating, and transport fuel puts more households at risk of fuel poverty this winter. Housing demand still far outstrips supply, with a shortage of properties available to rent and affordability an issue for many. 

The PBO has estimated that current spending would need to increase by €7.04bn in Budget 2023 to account for unexpected 2022 inflation combined with forecast 2023 inflation. This is significantly higher than the allocated budgetary package, meaning difficult choices will need to be made. Director of the PBO, Annette Connolly said, “With the unexpected level of inflation in 2022 and the 2023 forecast for continued inflation, there is considerable pressure on the public finances to maintain the existing level of public services and to insulate welfare recipients and taxpayers from decreases in real income. In these circumstances, budget measures should be targeted towards those households most in need, given that rising costs show no signs of easing.” The PBO has published an additional resource highlighting the distributional impact of targeted measures compared to universal measures. For example, increases to the working family payment and fuel allowance may be better uses of limited resources than child benefit payments and energy credits respectively.

While the immediate focus of Budget 2023 will be trying to protect households from the rising cost of living, there are many long-term risks facing the public finances that need to be taken into account. If these issues are not addressed, the Government will face significant challenges managing the public finances in the future. 

• Previous PBO research has highlighted the concentration and overreliance on corporation tax receipts. In 2021, Corporation tax receipts were three times higher than in 2014 and continue to grow rapidly. In the first eight months of this year, corporation tax receipts were 68.5% higher than the same period last year. Reliance on uncertain tax receipts to fund ongoing spending commitments poses a risk that sharp adjustments to spending levels may be required in the future if these receipts do not materialise.
• With energy prices currently driving overall high rates of inflation, key decisions at Budget time will include any changes to excise on petrol/diesel. One-off measures such as payments to help pay electricity bills or other lump sum subsidies help somewhat in the short term. Still, longer-term energy security and a move to greener forms of energy remain policy priorities. The budget will need to balance the immediate need of households to heat homes and keep cars on the road with longer-term commitments to decarbonisation and emission reductions.
• Previous PBO research showed that Ireland’s income tax and social security contribution burden is relatively low compared to other European Countries. With demographic pressures on the social insurance fund increasing, in the medium term, income tax policy may need to be reconsidered if European style public services are to be provided.