There is little justification for “broad” cost-of-living supports in the upcoming budget, the Central Bank has warned.
In its latest quarterly bulletin, the regulator sounded a note of caution against further measures to cushion the hike in living costs.
To avoid stoking existing inflationary pressures, the bank said, the Government should adhere to the expenditure ceilings outlined in the Summer Economic statement in the upcoming budget.
Asked if that allowed for further cost-of-living supports, the bank’s director of economics and statistics Robert Kelly said: “Ultimately that’s a political decision.
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“What we are seeing relative to three and six months ago is, the need for broad cost-of-living supports is less.”
He said temporary and targeted measures could be used to help vulnerable households.
The Government has signalled that an €8.5 billion fiscal package, comprising €1.5 billion in tax measures and €7 billion in spending measures, will be introduced in Budget 2027.
“To go more than that, there’s just not a need right now, when we look at the cyclical pressures, to have a stimulus in the economy,” Kelly said.
Minister for Finance Simon Harris recently said Government energy credits were a good way to support households during the current energy price squeeze.
But the Government has been criticised for adopting a universal approach to energy credits instead of tailoring them to the most vulnerable households.
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Minister for Public Expenditure Jack Chambers has, in contrast to Harris, played down expectations of a big tax giveaway, saying the proposed cuts to income tax would be “modest”, benefiting most people by only a few hundred euro a year.
In its latest report, the Central Bank revised up its growth forecasts for the domestic economy on the back of “resilient consumer spending” and multinational investment.
Modified domestic demand, a bespoke measure that captures domestic activity, is now projected to grow by 3.8 per cent this year and by 3.4 per cent in 2027.
Headline inflation is forecast to average 3.4 per cent in 2026, moderating to 3.1 per cent in 2027 and 2 per cent in 2028.
But the bank warned that there were significant upside risks to these inflation projections given the uncertainty over the path of the conflict in the Middle East.
In a severe scenario where oil and gas prices rise sharply above the bank’s baseline and remain persistently elevated out to 2028, inflation could accelerate above 5 per cent next year, exerting downward pressure on consumer spending and growth.
“Trade tensions remain high and firms are adjusting to a fragmented and less favourable trading environment,” Kelly said.
“Across Europe, the summer period saw record temperatures and prolonged drought. This has placed strain on food production and transportation, adding a further impetus to already high inflation.”
The bank cautioned the Government to stay inside the expenditure ceilings outlined in its recent Summer Economic Statement.
“This would help to limit fiscal exposure to potentially transitory corporation tax receipts, concentrated among a small number of multinational firms,” it said.
The Government is expected to collect a record €35 billion in corporate tax receipts this year. Without them, the projected surplus would morph into a deficit.
“Maximising the delivery of new public infrastructure to address known deficits in key national infrastructure and crowd in higher private investment will boost the economy’s long-run growth potential,” the Central Bank said.
