The Government has said it intends to increase core public expenditure in October's Budget by 6.1% to €91.2 billion.
The Summer Economic Statement (SES), which was signed off by the Cabinet this morning, reveals that ministers are planning to boost core spending in the Budget by €5.2 billion.
There will also be tax measures totalling €1.1 billion, bringing the overall Budget package of €6.4 billion which is an increase in core spending of 6.1%.
That’s above the Government’s 5% spending rule, but is lower than the increase in core expenditure announced in last year’s Budget.
Minister for Finance Michael McGrath defended the proposed spending increases in the budget, saying inflation has risen and the population is growing and ageing.
"We think that is absolutely warranted in the context of an economy next year whose national output will be in the region of €600 billion in GDP terms this is an additional €1 billion which will have a very very modest impact on the overall level of inflation," he said.
"I am absolutely satisfied that this strategy meets the prudence test," he added.
Minister for Public Expenditure Paschal Donohue said he also believes the budget strategy "passes the safety test".
However, further one-off measures and the level of non-core spending required to pay for accommodation for refugees from the war in Ukraine will not be finalised until October.
"This approach will balance the competing needs of delivering high-quality public services while minimising the impact of budgetary policy on inflation," Minister McGrath said in the SES.
"In conjunction with the establishment of a long-term savings vehicle, this approach will also help to ensure that the public finances remain on a sustainable trajectory
The Government said it would prioritise tax measures that shield workers from higher taxation arising because of inflation.
Michael McGrath said that as this is his first budget as Minister for Finance he will be "having a fresh look across the board, but the fiscal headroom will be limited, so I will need to be imaginative so far as the scope is there to new things".
The Government also said that in order to increase the pace of delivery of enhanced infrastructure, €2.25 billion of windfall receipts will be utilised to support additional infrastructure projects over the period 2024 to 2026.
But the minister also said it is important that complacency is avoided.
"While the economy has been able to absorb major shocks in recent years, it is not bullet-proof," Mr McGrath said.
"Major structural changes are underway in the wider global economy; the future could be very different from the past. It is imperative that we remain flexible and that we continue to adapt in order to respond to new challenges and opportunities."
Minister McGrath said that budget surpluses have been used to invest €6 billion in the national reserve fund and by the NTMA to manage public debt "on a sustainable basis".
Meanwhile, the Minister for Finance has said the Government will set out over the coming weeks and months details of a long-term savings fund and a public investment fund in which excess corporation tax will be placed.
Michael McGrath said the long-term savings fund will be used to meet demographics costs, as well as the costs associated with the climate transition.
"But we will also put in place a public investment fund to ensure that in the future, if there is a downturn, if there is an economic shock that we have the resources to continue to invest through the cycle and to ensure that capital investment is not the first victim every time there is a negative turn in the economy," Mr McGrath said.
He made his comments addressing an audience at the annual American Chamber of Commerce Ireland Independence Day lunch.
The minister added that later today the Government will also be setting out what more it can do in the very short-term using some of the windfall revenues to increase public capital investment.
Mr McGrath said despite the turbulence and the shocks the Irish economic story is one of resilience.
He said inflation is now less than 5% in Ireland, employment is at the highest level in the history of the State with over 2.6 million people working and unemployment is at 3.8%.
He said much of the success was down to the contribution of US multinationals operating here in Ireland.
Mr McGrath said last year the exchequer recorded a surplus of some €8 billion and it is anticipated this year it will reach at least €10 billion, with a larger one forecast for next year.
But he said the Government is also conscious of the risks and the underlying vulnerabilities, particularly from the ever-growing level of concentration in corporation tax receipts.
"And so we need to be careful in the decisions that we make with them and avoid the temptation to make permanent expenditure or indeed taxation commitments on the back of receipts that could prove to be temporary," he said.
"We've gone from collecting about €4 billion a year in 2014 in corporation tax to about €12 billion in 2020. And this year will exceed €24 billion. There's a rate of growth which is great to see, very welcome receipts, but we have to make decisions that future proof our economy."
Mr McGrath also pointed to the potential effects of changes to the international corporation tax system.
He said he will be legislating later on this year in the autumn Finance Bill for the new rate of 15%, that will come in under Pillar 2 of the OECD reform process.
He added that the OECD inclusive framework will meet next week, where it's hoped that many of the rules will be agreed with a signing ceremony expected to follow by the end of this year.
"But of course, for Pillar 1 to come into effect it does require everyone to jump together," he said.
"We need to have a critical mass of jurisdictions ratifying the agreement. This aspect of the agreement will come at a cost to Ireland in terms of Pillar 1," he stated.
"However, it is hoped that global implementation of the agreement would bring much needed stability to the international tax framework after the turbulence and the uncertainty of the last few years," he added.
Additional reporting by Robert Shortt
