Do No Harm: Budget 2023 should prioritise investment and welfare reform

Uncertainty once again dominates Ireland’s social and economic outlook and frames the context for Budget 2023. The Budget must respond to the current cost of living challenges but also recognise uncertainties that arise in four ways and which combined make the fiscal context for Budget 2023 one of the most difficult in some time.

 

First, there is uncertainty regarding the Covid-19 pandemic and the future direction and impact of the disease in late 2022 and early 2023. Despite a welcome reduction in infection levels, hospitalisations and deaths, the pandemic is not yet over and the possibility of further waves with associated disruption to day-to-day life remains. Like Budget 2021 and 2022, Budget 2023 will have to include a provision for possible additional public expenditure that may or may not be needed in the months ahead should new pandemic related challenges arise.

Second, the legacy effects of the most severe period of the pandemic continue to impact the supply of goods with the associated increases in prices representing one component of the current cost of living crisis. It remains uncertain as to if, and how fast, these supply issues will dissipate. Should they persist they will further add to the challenges households across the income distribution face in making ends meet in 2023.

Third, the geopolitical instability triggered by Russia’s invasion of Ukraine continues to unfold and is likely to have a notable and negative impact on economic activity, living costs and living standards across 2023. Again, the scale of these effects are unknown. However, it seems likely that these effects will trigger an economic contraction later in 2022 and for at least part of 2023. Responding to any recession, and protecting the weakest in society from its impacts, will be key. Like Budget 2021 and 2022, Budget 2023 will have to include a provision for possible additional public expenditure in the months ahead so that there is an available and credible fiscal response available to Government.

Finally, Budget 2023 will be framed in the context of the ongoing cost of living crisis which continues to undermine the living conditions of all in our society. As we note throughout this document, there are pronounced impacts on those with the least resources to absorb these cost increases. While it is expected that living costs will continue to increase across the rest of 2022 and into 2023, the scale of these increases remain difficult to predict. They are linked to the aforementioned supply issues, the energy cost effects of the Ukraine invasion, and broader cost and wage increases nationally and internationally. Inflation in 2023 could range anywhere between 5% and 20%; very different fiscal responses would be required for outcomes at either end of this range.

Social Justice Ireland’s proposed stance

Social Justice Ireland believes that Budget 2023 should be guided by one core principal, that the measures adopted prioritise the protection of the most vulnerable groups in our society.

This focus should also be articulated as the basis of the approach Government will take during 2023 if it becomes necessary to use additional resources, beyond those directly announced as Budget measures, to respond to the implications of the uncertainties outlined earlier.

The Budget should also signal the measures Government will adopt during 2023 should one or more of these uncertainties result in a sudden and deep economic recession. We believe that this should be reflected in a Budget 2023 commitment to pursue a targeted economic stimulus where the state commits to borrowing additional resources and uses these to invest in long-term infrastructural projects focused on social housing provision and measures to accelerate Ireland achieving our committed climate change targets.

While Ireland has an already high national debt and borrowing costs are currently increasing, the cost of funding these measures remains historically low and well below the return that these projects will provide to the state across their lifetime. State borrowing for prudent investment make sense at the best of times, but even more so should there be a sudden economic contraction.

Should a sudden economic slow down emerge during 2023, it should not become another missed opportunity for fiscal action to respond and simultaneously stimulate the economy and address Ireland’s infrastructural deficits.

Reflecting this approach, Social Justice Ireland proposes that:

• Budget 2023 prioritises welfare and public expenditure measures designed to protect the most vulnerable groups in our society from the current cost of living challenges; and
• Budget 2023 outlines a large scale and targeted fiscal stimulus plan, focused on additional investment in long-term infrastructure, which can be introduced during 2023 if a sudden and severe economic downturn emerges.

Budget Choices 2023 is available to download now.