Budget 2025 must focus on building resilience rather than the upwards redistribution of resources

Posted on Monday, 2 September 2024
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Government should use its final Budget to adopt recurring taxation and expenditure measures which prioritise building resilience, protect vulnerable groups and invest in much needed infrastructure and services.  Temporary one-off measures, energy credits and tax cuts formed a key part of Budgets 2023 and 2024 have seen income gaps widen and resulted in an upwards redistribution of resources.  A repeat of these policies in Budget 2025 will only serve to exacerbate income gaps.  Instead, Budget 2025 should focus on building resilience across our people, communities, infrastructure and services, and prepare Ireland to manage the many transitions it faces – demographic, digital, economic and environmental.  Government should prioritise investment in policies for the common good, in our social infrastructure, and building up the public sphere that provides the services that we all rely on.

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Resilient services and infrastructure

Enormous windfall tax surpluses have been generated.  Government must use these surpluses to provide the infrastructure required to keep pace with population growth.  We have failed to do this to date.  Government must not squander its last chance to make a truly transformative impact and should invest these windfall revenues appropriately in Budget 2025.

The right decisions must be made with regard to building more social homes, ensuring our healthcare system can meet the needs of a growing and ageing population, delivering sufficient school places for every child, regardless of ability or need, and upgrading our water and energy infrastructure so that they are fit for purpose and can meet any future challenges.

Government should allocate any additional windfall revenues to a Domestic Infrastructure Fund which should immediately begin to tackle deficits in our housing, energy, water and transport infrastructure.  This funding should be in addition to the commitment made in last year’s Budget for the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.  Resilient and adequately resourced public services and infrastructure will help us to manage the many changes that are coming and support people and communities during these transitions.  This Government has one last opportunity to get this right.

While the establishment of two dedicated funds where much, but not all, of the windfall corporate tax revenues are to be placed in Budget 2024 is welcome, there is no detailed plan as to how these funds will be used over the next 10-20 years. Budget 2025 needs to deliver this plan, one where these resources should be invested only in one-off projects to address deficits in our social and physical infrastructure.

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Policies that prioritise income adequacy, not the upwards redistribution of resources

Recent budget decisions have resulted in temporary measures and payments being concentrated among welfare dependent households and low income workers, widening income gaps which will have long term impacts.  Temporary payments will not carry over to future years’ income and the relative standing of these households is likely to deteriorate in the near term.  Looking at those at the upper end of the income distribution, income gains received by higher income working households are much more associated with permanent measures (income taxation reductions). Once the temporary measures disappear, the income effect associated with these permanent measures will remain and notably widen Irish society’s income divisions.  Addressing income gaps that will have opened up as a result of these measures will present some notable challenges for any future Government.

Adequate levels of social welfare are essential to address poverty. A minimum social floor means maintaining adequate levels of social welfare. If we are to take poverty, including child poverty, seriously, we must invest in adequate incomes. Core social welfare rates must increase by €25 in Budget 2025, and a commitment to benchmarking social welfare rates to average weekly earnings is essential if Government is to have any impact on reducing poverty and meeting its own targets.

Our recent analysis of the distributive impact of Budget 2024 found that it provided least for the large cohort of lower income workers; those earning above the minimum wage but below annual income levels that allow them to experience much of the value of the income tax changes. A group earning around €15 to €20 per hour (€30,000 to €40,000 per annum). Year after year this large group of workers hears of ‘gains’ from the Budget but experiences little if any of them.  Changes to the higher rates and bands of income tax do not benefit this group.  Social Justice Ireland has continually highlighted the relevance of refundable tax credits as a means of making the taxation system fairer and helping this low-income group.

As the last budget of this Government, there is an opportunity in Budget 2025 to leave a lasting legacy. Harnessing the significant wealth generated by our economy to address existing social deficits is the best way to prepare for the future. Whatever the agenda of the next Government, the last five years have demonstrated that when unforeseen crises come along, they risk taking over the political agenda. Therefore, it is important to embed resilience in our communities now by investing in our infrastructure, services and people during a period of relative political stability and substantial financial resources.

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