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Ireland Dips Into Budget Surplus To Ease Cost Of Living Squeeze

Ireland has dipped into one of Europe's few budget surpluses to fund higher-than-usual spending hikes and tax cuts, ease energy costs for firms and consumers and set cash aside in a budget it said was in sharp contrast to neighbouring Britain's economic plans.

Minister for Finance Paschal Donohoe said Ireland would still be left with a surplus of 2.25% of national income next year even after delivering what ministers have dubbed two budgets in one - mixing €6.9 billion of permanent spending increases and tax cuts with €4.1 billion of one-off energy measures.

Public Finances

Conscious that the public finances would still be in deep deficit this year without surging corporate tax receipts paid by a small number of multinational firms, Donohoe said on Tuesday he would put €2 billion into a reserve fund this year and set aside another €4 billion next year.

"It is a major achievement for our country to be in a position to put additional resources aside in order to prepare for future challenges, and to run a surplus," Donohoe told Dáil Éireann.

"And let me be clear there are the major challenges which we know are coming, and which we know will be very costly for future generations."

The finance ministry, central bank and fiscal watchdog had all urged the government to start setting some of the windfall corporate taxes aside.

Tánaiste Leo Varadkar had earlier said that the budget was in contrast to the economic plan outlined by Britain last week that sent shockwaves through financial markets due to the level of borrowing required.

Ireland's plans were being self-financed "because we have a strong economy," he told reporters.

European Commission Forecast

In May, the European Commission forecast that Denmark would be the only country in the EU to deliver a surplus this year with Sweden, Ireland and Luxembourg joining them in 2023.

Ireland's forecasts on Tuesday included a surplus of just under 0.5% of national income for 2022.

The finance ministry nevertheless slashed its forecast for modified domestic demand - its preferred measure of economic activity - to 1.25% for 2023 from 3.9% previously.

That was mainly because it now sees inflation averaging 8.5% this year versus 6.2% previously, and just over 7% in 2023 compared to the 3% expected five months ago.

Helping Ease Impact Of Inflation

To help ease the impact of inflation that is running at nearly a 40-year high, the budget included permanent hikes to social welfare rates, cuts in childcare, university and school costs, as well as a previously agreed public sector pay deal.

The amount of money people can earn tax-free before hitting the higher rate of income tax was also increased.

Every household will receive €600 off their next three energy bills, with most small- and medium-sized firms eligible for €10,000 a month towards their energy costs in the coming months.

Allowances aimed at protecting people against fuel poverty were also among the one-off measures.

News by Reuters, edited by Donna Ahern, Checkout. For more retail stories, click here. Click subscribe to sign up for the Checkout print edition.

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