Lower-income households will be worse off unless budget one-off payments are repeated, ESRI warns

Think tank says permanent changes to tax and welfare measures benefit those on higher incomes

Many lower-income households will experience real cuts in living standards in the latter half of 2023, the Economic and Social Research Institute (ESRI) has warned, unless the Government rolls over the range of welfare bonuses, lump-sum payments and household energy credits unveiled in the budget this week.

The ESRI says this is because increases to tax credits and regular weekly welfare payments announced for next year were below the forecast for inflation, leaving people poorer off after the once-off cost-of-living package is stripped out.

But those cost-of-living measures announced in Budget 2023 will insulate most households from rising prices this winter, according to new research presented on Friday at its post-budget briefing.

“Our research shows the Government’s approach to insulating households from the recent rise in energy prices has been effective,” said Barra Roantree, a research officer at the think tank. “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.”


Cushion for incomes

“The one-off measures announced as part of Budget 2023 will substantially cushion real incomes,” said Karina Doorley, a senior research officer at the ESRI.

“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.”

The ESRI said the effect of freezing PRSI and most universal social charge bands by Minister for Finance Paschal Donohoe was to reduce the after-tax purchasing power of lower earners who do not earn enough to pay income tax, though it acknowledged that some of this group would benefit from an increase to the minimum wage.

Meanwhile, the above-inflation increase to the standard-rate income tax band – which rose €3,200 to €40,000 for a single person and pro rata for married couples and civil partners – will mitigate the effect of inflation on higher-income households, it said.

Childcare costs

On childcare, it said the rise in universal support of 90 cent per hour would reduce the out-of-pocket childcare costs of those using full-time formal childcare “but will not initially reduce childcare costs for informal childcare arrangements like childminders – who are used by one-third of parents paying for childcare”.

And it warned that the burden of the new 10 per cent concrete levy was likely to fall on purchasers of newly built homes rather than on industry, given the supply issues in the sector and continuing robust demand for homes.

Overall, in terms of how well the budget managed to address the critical issue of surging electricity bills that was dominating headlines ahead of budget day, ESRI research professor Kieran McQuinn 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.”

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times