The Government’s one-off measures “will insulate most households from rising prices” this winter, according to the Economic and Social Research Institute (ESRI).
The think tank added that further welfare bonuses, lump-sum payments and household energy credits would be needed next winter to prevent “real term cuts” to the living standards of lower-income households.
A package of one-off measures to help people struggling with the rising cost of living was announced as part of Budget 2023 this week.
The core budget package was worth €6.9 billion, with one-off measures worth €4.1 billion, in what is one of Ireland’s most significant budgets in years.
In the aftermath of the announcement, opposition parties and representative groups argued that more could have been done to help people pay soaring energy bills this winter.
Among the main criticisms was an increase of €12 per week for core social welfare payments as part of Budget 2023, which fell short of calls to increase welfare payments by €20 a week.
The ESRI said its research shows that welfare increases in 2022 and 2023, together with one-off measures, “are large enough” to leave the lowest-income households better-off on average than they would have been had welfare payment rates risen in line with inflation both this year and next.
It added that the increases to tax credits and welfare payments next year, which fall below the forecasted inflation for 2023, will mean many lower-income households “will experience real terms cuts in living standards” in the second half of the year.
It suggested that a repeat of the welfare bonuses, lump-sum payments and household energy credits would be needed to prevent this.
The increase of the high tax rate of 40 per cent from salaries of €36,800 to €40,000 “will mitigate the effect of inflation on higher income households”, the ESRI said, but added that most Universal Social Charge and PRSI bands were frozen, and tax credits are indexed below inflation.
“The effect of this is to reduce the after-tax purchasing power of lower earners who do not earn enough to pay income tax, though some of these will gain from an increase to the minimum wage,” the ESRI said.
Of the Government’s introduction of a new levy on certain concrete products to fund redress for those affected by the Mica defective blocks issue, the ESRI said: “Given robust demand for housing combined with long-standing supply constraints, the burden of this new levy is likely to fall on the residents of newly built homes rather than on industry.”
Barra Roantree, a research officer at the ESRI, said: “Our research shows the government’s approach to insulating households from the recent rise in energy prices has been effective.
“Targeted welfare measures combined with universal household energy credits will do more for most lower income households this winter than had welfare payment rates risen in line with inflation both this year and next.”
Karina Doorley, a senior research officer at the ESRI, said: “The one-off measures announced as part of Budget 2023 will substantially cushion real incomes.
“However, most of the permanent changes to tax and welfare measures benefit those on higher incomes.
“Policymakers may need to consider benchmarking social welfare payments once the inflation crisis has passed to ensure that they provide adequate income for recipients.”
Kieran McQuinn, a research professor at the ESRI, said: “By providing support for household incomes and for businesses, the budgetary package should mitigate the impact of impending energy costs on domestic economic activity.”
