What is under the bonnet of Budget 2025?

Sometimes it takes a few days after the Budget is announced for its full impact to become clear.

Much attention was given to the pre-election bonanza of one-off payments and tax measures.

They were criticised by the Irish Fiscal Advisory Council as untargeted but welcomed by those feeling the pinch.

That said, not everyone due to receive these one-off universal payments is experiencing cost-of-living pressures.

But there is something important under the bonnet of this week's Budget: a significant step change regarding capital spending over the coming years.

The Coalition added almost €1 billion to capital expenditure for 2024, bringing it to €14bn, with an increase in the next year to €15bn.

It has also taken a significant step by loosening the purse strings of the National Training Fund.

This will result in spending of €1.5bn over six years which goes towards so-called human capital including research, higher education, skills and decarbonisation.

In addition, it announced some further measures, most of which are not on the Government’s balance sheet and therefore not counted as part of the Budget.

"The big play is giving money to utilities," says Fergal O’Brien, a director of employers' organisation, Ibec.

The Government is investing the proceeds from the sale of €3bn of AIB shares into the Land Development Agency, Eirgrid and Irish Water.

The feeling among some Cabinet members is that the Land Development Agency is beginning to finally show progress after a disappointingly slow start.

Its job is to build social and affordable homes on public land.

The important piece of news for the agency is that the Coalition has now increased its spending power to €6.25bn, up from €5bn.

So far, the Government has put €2.5bn of equity into the organisation, this week it committed to invest a further €1.25bn from the sale of AIB shares.

The agency can borrow another €1.25bn from the markets but so far has held off doing so due to high interest rates.

There is still a gap of another €1.25bn which needs to be filled in the agency's funding.

Minister for Finance Jack Chambers hinted it could come from the sale of more AIB stock.

"With further and future AIB share sales we want to prioritise housing, water and energy, and the Land Development Agency will be an important component of that," he said.

The Budget also saw €750m going to the national electricity grid operated by Eirgrid.

This too is critical as Ireland has ambitious plans to move away from fossil fuels and use more renewables, which will require a much stronger electricity network.

The advantage of both the Land Development Agency and Eirgrid is that those investments don’t count as Government spending.

The headache is Irish Water, or Uisce Éireann.

Ten years ago, the Fine Gael and Labour coalition backed down in the face of enormous pressure from the public, resistant to a new tax in an era of rising taxes, pay cuts and job losses. Reluctantly, that administration scrapped water charges.

Politically, the then government probably had no choice: the people had taken as much austerity as they could stomach during the financial crisis and subsequent bailout.

However, the consequences are now coming home to roost.

Any further spending on the water infrastructure will be counted as Government expenditure because it is on the State’s balance sheet.

One senior Government source described it as "a disaster" this week because the creaking infrastructure urgently needs investment.

At the same time, Irish Water must roll out connections for more home building to deal with the housing crisis.

New EU rules mean Ireland will have to set out its budgetary plans and these will need to be "approved" by Brussels.

If the Government wants to invest significant sums in Irish Water, allocations elsewhere will have to be curtailed to keep within limits.

If water charges existed, the organisation would be able to borrow on the markets and the spending would not be counted as part of the Budget.

But don’t expect TDs to argue for re-introducing the charges.

A general election is just around the corner.