Budget 2021: The future of wage subsidies, plans for carbon tax and help for older people – ten things we learned

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Finance Minister Paschal Donohoe has briefed TDs on how Budget 2021 will be drafted to safeguard against the possibility of Covid-19 remaining a threat throughout all of next year.

t will also be planned with the fall-out from a no-deal Brexit in mind.

There were few definitive answers on specific Budget measures, but Mr Donohoe offered hints on issues like the future of wage subsidies and supports for Covid-19-hit industries such as hospitality and aviation.

Here are ten things we learned about how he and Public Expenditure Minister Michael McGrath are approaching the Budget:

1. Wage subsidy schemes will need to be reduced if they are to be extended

Mr Donohoe said it may be some time before we learn if the Employment Wage Subsidy Scheme (EWSS) will be extended beyond March 31, 2021 – its currently scheduled end date. He said options are being explored but “we are still some way away” from being able to answer questions relating to what level of subsidy will be needed in April and May.

The chances of a Budget Day announcement on the future of the scheme seems in doubt given that it’s just a week and a half away. He said both the wage subsidies and the Pandemic Unemployment Payment (PUP) have been changed since they were brought in and that they can’t be kept going indefinitely. He added that subsidies can be continued for a long enough period to deal with Covid-19, but a consensus must be built on reducing them as the economy reopens.

2. The Government’s National Economic Plan has been delayed

The Programme for Government states that the plan charting Ireland’s longer-term, jobs-led recovery would be set out on the same day as the Budget.

Mr Donohoe confirmed that this won’t happen. He said: “It will follow from the Budget and I expect it to be published in the first half of November.”

Asked about the delay, a spokesperson said the National Economic Plan will be “a substantial body of work” and it “needs a few more weeks”.

3. Carbon tax will go up, but a ‘significant share’ of the proceeds will go to the vulnerable

The Programme for Government commits to increasing carbon tax by €7.50 per tonne for most of the years leading up to 2030, so an increase of this scale can be expected.

The Green Party’s Neasa Hourigan asked how the proceeds will be spent. Mr Donohoe said they will be ring-fenced to protect those at risk of fuel poverty. He also said that funds will go towards making progress on retrofitting homes for energy efficiency. He said a “significant share” of the revenue generated will go towards allowances in the social welfare code that protect vulnerable households from fuel poverty.

4. The Budget will help older people, but the minister won’t say exactly how

The €5-a-week hike in the State pension that has been a feature of recent Budgets appears off the table this year given the dire economic circumstances.

Mr Donohoe reassured TDs that older people won’t be forgotten. He said: “There is always an awareness of older people in Budget Day announcements because of the contribution that they have made to our country.”

He added that “the Government have not decided on the specific nature of those decisions yet.”

5. The economy will only fully recover when there’s a Covid-19 vaccine

Mr Donohoe told TDs there are signs of the economy recovering but warned that it will only happen fully when a vaccine is available.

He said that even in the scenario of a no-trade-deal Brexit, there is expected to be 1.5pc growth next year. The Government’s forecasts are based on an assumption that there may be no broadly available vaccine next year.

He said that a vaccine would allow the country to start getting back to the levels of employment and income growth seen before the pandemic.

6. Unemployment could be almost 3pc higher if there’s a no-deal Brexit

Ireland’s stark unemployment rate is expected to improve to 8pc next year but, crucially, only if there’s a Brexit deal.

He warned: “In absence of that agreement, unemployment would be between 10 and 10.75pc and that is such a big difference to the lives of so many people.”

7. There will be no wealth tax in the Budget

Labour TD Ged Nash asked if the Government will bring in a form of wealth tax in the Budget. He received one of the few definitive answers from Mr Donohoe, who said: “There won’t be a wealth tax.”

He pointed to capital gains tax and local property tax as ways that wealth is already taxed. Mr Donohoe also said: “It appears to me that wealth taxes in other countries leads to either wealth moving or tax advisers and solicitors being paid well”

8. Sectors badly impacted by Covid-19, like hospitality, aviation and entertainment, will be ‘a big part of Budget Day’

Mr Donohoe indicated that there will be support for the worst-hit sectors of the economy like hospitality and aviation, but, again, was light on the details.

He said that he and Mr McGrath are due to meet relevant ministers on the issue. He told Fine Gael’s Kieran O’Donnell: “Clearly we are aware in Budget preparations that there are some parts of the economy and our country that are not recovering at all with the speed that others are.”

The minister added that helping those sectors will “form a big part of what we will do on our Budget day.”

9. Nama will chip in again next year

The National Asset Management Agency (Nama) returned around €2bn to the exchequer this year. Mr Donohoe told Sinn Féin TD Maireád Farrell that the State’s “bad bank” setup during the last recession is expected to contribute a further €1.5bn in 2021.

However, he also said next year’s Budget deficit due to the Covid-19 crisis could be between €14bn and €19bn.

10. We’re not finished spending huge sums of money on Covid-19 this year

Mr Nash asked the Finance Minister about the Parliamentary Budget Office’s prediction that a further €7bn will have to be provided to Government departments this year.

That is on top of billions in additional funding already spent in the battle against Covid-19 and its health and economic impacts.

Mr Donohoe said the Cabinet agreed revised estimates this week and they will be presented to Oireachtas committees over the coming weeks.

Source: Irish News