What's the Summer Economic Statement?
It is a document that sets out the parameters of the forthcoming Budget. That means, in broad terms, how much 'new’ money will be spent or used to lower tax rates on Budget day. It also shows the total amounts of Government spending planned for budgets out to 2025. And it contains a lot of information about the economy.
Does it tell you what will be in the Budget?
No. Just the big numbers that frame the Budget. No details on what measures may be announced on Budget day.
Because that still involves a lot of wrangling between different Government departments and their ministers over what the Government’s priorities should be. In other words, where the money should be spent.
So, just how much more will be spent?
€6.7 billion. That is on top of what the Government already spends to keep everything from schools to hospitals open. Around €3 billion will be used to keep the existing services up to scratch with the number of new babies born, children entering school and new pensioners drawing down their State pensions or accessing hospital services as well as everything else across public services.
That leaves €3.7 billion in ‘new spending’. Of that, just over €1 billion will go on tax measures and the rest on public services.
Where did the money come from?
Taxes have been exceptionally strong in the first six months of this year. In fact, the Exchequer collected €7.4 billion more in tax, that is 25% more, compared to the same six months of last year. Some of that is the bounce back from Covid when many of us spent less because places were closed. But a big chunk, €3 billion, comes from taxes on the profits of companies located here called corporation tax.
Up to a point. Just ten multinationals account for half of the corporation tax collected in the State. It is such a big amount that it now accounts for one in every €8 collected in taxes. As long as those companies stay here and continue to pay those levels of taxes, the Government has a lot of leeway when it comes to spending. But the danger is we become reliant on taxes that might disappear if their plans change.
And what about the spending rule?
Last year the Government introduced a spending rule which would limit increases in spending in budgets out to 2025 to 5% a year. What it announced today means spending will grow next year by 6.5%.
The Government points to the fact that inflation is much higher than had been thought and it plans to return to the 5% rule in 2024. Minister Michael McGrath described the planned spending increase on RTÉ's Six One News as "a modest adjustment and a prudent one".