Economists ponder whether Government ‘went too far’ with budget largesse

Ministers spent much of the run-up to the budget warning citizens that they could not fully protect them from the ravages of inflation and the energy crisis. But, according to researchers from the Economic and Social Research Institute (ESRI), they have more or less managed it.

The Government’s largesse, with a package of more than €11 billion, even “potentially went too far”, said one ESRI economist.

Karina Doorley, an ESRI economist, gave a presentation on Friday at the think tank’s annual post-budget briefing, laying out the distribution of the Government’s budget measures – who got what. She highlighted that real incomes (gross income adjusted for inflation) would fall next year. But once the Government’s changes to the taxation system as well as benefits, such as child benefit, are taken into account alongside other once-off measures such as energy credits, most people could be marginally better off, which might have its own inflationary impact.

Inflation blow

Speaking afterwards to The Irish Times, Doorley said the Government went “further than a lot of people expected” with its budget measures. The impact of the State’s tax-benefit measures would cushion almost all of the blow from inflation, even if real incomes fall, she said.

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However, Doorley warned, the Government has stored up an issue for itself for next year. Some of the once-off measures, such as three €200 energy credits, will help everybody. But other permanent measures, such as a widening of income tax bands, will help higher earners far more than those not in the workforce or lower earners, who are lifted proportionally more by once-off payments.

As the permanent spending changes such as tax measures benefit richer households more, the Government will have to re-examine the welfare system in the next budget to see if it is still “fit for purpose”. A lot done, but still plenty left to do, it seems.