The NERI is today appearing before the Joint Oireachtas Committee on Budgetary Oversight. You can find our opening statement here.
We make the following broad points:
• We strongly support the prioritisation of government spending on infrastructure but believe that a more holistic approach should be taken to the concept of ‘investment’ with greater allocations needed for annual spending on human capital (education and skills) and on innovation (public R&D, technology diffusion).
• The government should abandon its Budget 2026 plans to extend the 9% VAT rate to include hospitality. Instead, over time the government should broaden the tax base by bringing the VAT rate on hospitality into line with the standard VAT rate. Some of the yield from this measure could be used to simultaneously reduce the standard VAT rate.
• The Commission on Taxation and Welfare’s broad approach to strengthening the revenue base of the state should be pursued over the medium-to-long-term and, in particular, we note their suggestions to gradually minimise the use of tax expenditures and increase taxes on capital.
• The government should increase the minimum wage to the level of the living wage in 2026, as was previously committed to by the main parties in government.
• The government should introduce a 2nd tier of child benefit in Budget 2026 in order to reduce by 50,000 the incidence of child poverty in Ireland.
• The once-off payments from previous budgets should be replaced by a system of empirically based adequacy payments throughout the welfare system with a rationalisation of the system to minimise cliff edges, and distortions as per the recommendations of the Commission on Taxation and Welfare.
• The government should begin the process of developing a public childcare option over the medium-term beginning with geographic areas (often low income areas) that are currently underserved in terms of affordable childcare availability.
• The government should ensure that Budget 2026 and subsequent budgets are countercyclical. Net spending should not exceed 5% in Budget 2026 with higher levels of actual spending increases funded by a broadening of the state’s revenue base with an emphasis on capital taxes and the watering down of tax expenditures.
• The government should move to a ‘carrot over stick’ approach to managing the green transition with much more significant and generous funding made available for public transport and for green subsidies to enable lower income households invest in housing retrofits and in electric vehicles.
Overall, the €9.4 billion budgetary package is much too large albeit the pivot towards capital spending is a very welcome shift. The five-year medium-term fiscal and structural plan needs to be expedited and needs to be serious. That document should then frame the budgetary parameters for the rest of this government. The plan will need to be a mature attempt to adequately tackle questions about medium-term sustainability with a credible plan developed for achieving a fiscally sustainable equilibrium over the longer-term.