Budget bakes in billions of euro in reserve should energy crisis deepen

Mr Donohoe also detailed the huge increase in tax revenues filling the exchequer coffers this year, forecast budget surpluses, and put aside a total of €6bn into a reserve over two years.

Most economists ahead of the budget had predicted that Irish inflation would fall back sharply in 2023, as the extreme hikes in gas and oil prices that drove inflation across Europe this year fell out of the calculations.

Kieran McQuinn, economics professor at the Economic and Social Research Institute, said that the 2023 inflation projection looked “quite high”, showing the Government was building in something of an insurance policy should energy costs flare higher in any further escalation of the economic fallout from the Ukraine war.

“Ordinarily, we would be concerned about the size of the package, but we are facing into unprecedented times, and no one really knows how high the energy costs could go and households and businesses needed to be supported to prevent drastic outcomes over the winter,” Mr McQuinn said.

The ESRI welcomed setting aside the €6bn over this year and in 2023 as helping assuage concerns over windfall corporate tax revenues, Mr McQuinn said.

On housing measures, Mr McQuinn said the ESRI had long questioned the Help to Buy scheme, but welcomed the vacant homes tax although the rate seemed to be set at too low a level, while the childcare initiative was also welcome to encourage people into the work force, he said.

Gerard Brady, chief economist at business group Ibec, said that the projected budget surplus next year and the €6bn set aside meant that the Government would have a total of €12bn by the end of next year if needed, should the economic war over Ukraine deteriorate further.

Economist Austin Hughes said he was hopeful that the official inflation figures would come in lower than forecast in the budget, noting that price pressures drop dramatically in 2024.

Meanwhile, Tánaiste Leo Varadkar announced a range of new measures to help businesses cope with unprecedently high costs.

One of these was the Temporary Business Energy Support Scheme (Tbess) to help employers get on time of soaring utility bills.

The €1.2bn scheme will cover 40% of the increase in electricity or gas bills and eligible businesses can get up to a maximum of €10,000 per month. The scheme is administered by Revenue Commissioners and will run into spring 2023.

The scheme will be backdated to September and the first round of payments is expected to be made in November this year.

Mr Varadkar, who is also minister for enterprise and trade, indicated these initiatives will put businesses in a better position to put up wages in compliance with the latest 7.6% minimum wage increase.

A second scheme introduced in this year’s Budget to help businesses was the €200m Ukraine Enterprise Crisis Scheme. This is aimed at helping manufacturers that have been hit by surging costs, especially in energy, brought about by the war in Ukraine.

Companies that are eligible for this scheme include those that consumer high amounts of energy. They can avail of up to €2m from the scheme.