Landmines lurking in Budget 2027 are not so hard to spot

The papers drawn up by the Tax Strategy Group are a strange collection, comprising advice from senior civil servants to Government on things that may happen this year, could happen some year, or are unlikely ever to happen. They also reflect the increasing trend towards governments controlling information that is published; in previous years the papers had analysis that would spark debate, but there is little enough of that now. You do not have to read far between the lines, though, to spot the landmines lurking in Budget 2027.So what do they tell us? Well, in the normal budget fare of income tax and welfare changes, they outline the increasing costs of delivering real gains to people at a time when inflation is eating away at the value of what they receive. Indexing the income tax system for expected wage inflation next year would cost €1 billion. Each €1 rise in weekly personal rates, dependent rates and supplementary welfare payments would cost more than €120 million – so €10, as was paid last year, would cost €1.2 billion. READ MOREAgainst this backdrop, cash left to do other things within the budget package is going to be limited. The Government has promised to reform inheritance tax, for example, and increasing the tax-free thresholds a bit under the three categories A, B and C would be affordable.[ Adjusting income tax bands and credits for inflation would cost over €1bn next yearOpens in new window ]But more fundamental change – for example bringing the lower thresholds, now €20,000 and €40,000, up to the level of the €400,000 which applies to children inheriting from parents – would involve costs running into the hundreds of millions. Energy prices are another building budget dilemma, particularly as wholesale prices are now on the rise again and there are fears – if the US and Iran do not quickly resume their ceasefire – of pressure on both oil and gas prices. The Government plans to phase out the excise cuts introduced earlier this year by December, but will come under pressure to extend this. Meanwhile, the Opposition will focus on carbon tax increases due in the budget, and some postponed increases from May due to come into force just before it, which will add further to fuel costs. The papers point out that the total revenue next year from the implementation of the postponed increases and the ones due in the budget is a hefty €168 million, with some of this money set aside for retrofitting, agricultural measures and welfare payments. Aer Lingus job cuts and Ryanair’s profits plunge - what is happening in the Irish aviation sector?In other words, not going ahead with the carbon rises would leave another hole in the budget that would have to be filled. This is likely to be the sharp end of the cost-of-living debate in the budget, along with whatever the Government does in areas such as childcare. There are also longer-term measures recommended, including an interesting chapter on social insurance which calls for an increase in the minimum amount people have to earn to qualify for benefits, as well as a “roadmap” to increase payments by the self-employed, who pay at a lower level despite having access to 90 per cent of the benefits. With PRSI payments due to increase anyway next year by 0.15 per cent, the Government is unlikely to bite here. It has more than enough other headaches as the real negotiations on the budget get under way in earnest.