Economics: Ireland’s Budget for 2018 to be unveiled today

The domestic focus on Tuesday turns to Ireland’s Budget for 2018, which will be unveiled at lunchtime today by Minister for Finance, Paschal Donohoe.

Taoiseach Leo Varadkar has promised to reduce the tax burden on middle-income earners in Budget 2018. He favours making changes so that workers can earn more money before they hit the top 40% income-tax rate. Reports in the media suggest there may be a reduction in the Universal Social Charge and a change to tax bands, but still the overall gain for workers is likely to be quite modest.

We can also expect increases for Social Welfare recipients, but there will be higher taxes in other areas, including a new sugar tax, to compensate. The cost of cigarettes will also rise and an increase in carbon taxes is on the cards too.

On the spending side, new teacher posts will be announced in an attempt to reduce the pupil/teacher ratio in our schools, more gardai will also be a feature of the fiscal package and the Health vote will as usual get more money.

However, the main thrust of the Budget will be on the housing crisis, which has become the main political “hot potato” at the moment, overtaking general concerns regarding the underlying state of the Health sector.

As regards housing, there appears to be no simple answer. There is a shortage of every type of housing and it needs to be addressed urgently. And high-profile politicians objecting to proposed developments in their constituencies because the buildings don’t fit in, certainly doesn’t help.

Our GDP numbers may point to a rich developed country, but you wouldn’t think it judging by the number of people sleeping rough on the streets in our major cities. Meanwhile, first-time buyers continue to be priced out of the market. Subsidising purchasers through tax breaks is not the answer. Irrespective of which solution is proposed, there is likely to be some flaw.

There is speculation that there will be a hike in the stamp duty on commercial property transactions to as high as 5% from 2% at present. However, practitioners in the field have warned that such a move would hit residential sites, pushing up the cost of housing instead of bringing it down. As such, the Minister might have to think twice about this move.

In overall terms, we are not anticipating any major surprises, that haven’t been leaked to the media in advance. The White Paper on Receipts and Expenditure saw the Government aiming for a balanced budget in 2018 before any changes today, down from an estimated deficit of 0.3% of GDP in 2017. We think post-Budget, a deficit of 0.2% of GDP might be targeted.

Alan McQuaid (10/10/17)
Economist

Dylan Simmonds
Equity Analyst