Budget measures ‘will compensate households for forecast price growth’

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Budget Measures ‘Will Compensate Households For Forecast Price Growth’ Budget Measures ‘Will Compensate Households For Forecast Price Growth’
Copies of the Budget 2022 at Government Buildings, Dublin, © PA Media
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By Cate McCurry, PA

Increases to welfare payments and tax bands will on average compensate households for forecast price growth, according to research.

However, below-inflation increases to the Working Family Payment and state pension mean that some low-income working parents and retired couples, who do not receive the fuel allowance, will see their disposable incomes eroded by rising prices, it found.

The research into Tuesday’s budget was published by the Economic and Social Research Institute (ESRI).

It also found that although increases to the carbon tax and tobacco duty disproportionately affect lower income households, they also gain from above-inflation increases to core social welfare payments and supplements for those living alone or with dependants.

Minister for Finance Paschal Donohoe, right, and Minister for Public Expenditure and Reform Michael McGrath at Government Buildings, Dublin (Damien Eagers/PA)

The ESRI said these increases are “sufficiently large” to offset the impact of increases to indirect taxes for the lowest-income fifth of households.

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It will also leave poverty slightly lower had all welfare payments and tax bands kept pace with inflation, it found.

Karina Doorley, a senior research officer at the ESRI, said: “The changes announced in Budget 2022 will on average compensate households for forecast price growth and leave poverty slightly lower than would an inflation-proofed budget.

“However, some low-income working parents and retired couples will see real cuts to their payments, as may others if price rises turn out to be larger than forecast.”

 

Barra Roantree, an ESRI research officer, said: “Budget 2022 announced some well-targeted reforms with clear policy objectives, such as the above-inflation increases in welfare supplements for those with dependants and those living alone, which will slightly reduce poverty.

“However, it’s not clear why the arguments for increasing income tax bands and credit do not apply equally to PRSI and USC bands or to core welfare payments, some of which rose above and others below the forecast rate of inflation.”

Kieran McQuinn, a research professor, said: “From a macroeconomic perspective, Budget 2022 sees further increases in both current and capital expenditure.

“The expected increase in capital investment is particularly welcome and reflects a period of dis-investment after the economy recovered from the great financial crisis.

“Over the coming years, fiscal policy will have to be restrained in terms of current expenditure to ensure that the increase in capital investment does not cause the economy to overheat, particularly as the economy is expected to grow robustly.”

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