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The Debate: What should be done in Budget 2025 to ease the cost-of-living crisis?

In a recent Irish Times poll, half of voters said they wanted the Government to prioritise ‘immediate help with the cost of living’. However, there are differing views on the best way to do that

Cost-of-living crisis: What measures should be included in the budget to help people with the financial pressures? Photograph: Joel Saget/Getty Images
Cost-of-living crisis: What measures should be included in the budget to help people with the financial pressures? Photograph: Joel Saget/Getty Images
Tom McDonnell
Suzanne Connolly
Tue Sept 24 2024 - 06:00

Tom McDonnell: Once-off payments are not the answer to the cost-of-living crisis

The cost-of-living crisis is far from over. Although price inflation is slowing, average prices have increased a massive 21 per cent in the last four years and incomes for many households have not kept pace.

The experience of this crisis is unequal. We have an economy of winners and losers. Some households have never done better, while others are struggling with the rising cost of living. On the one hand, material deprivation has been on the rise since 2021. On the other hand, the economy and labour market are booming and net household wealth has surged to record levels.

We know which groups are most vulnerable to cost-of-living pressures and deprivation thanks to Central Statistics Office (CSO) data. Examples of deprivation include having to go without heating in the last month; being unable to afford new clothes, or being unable to afford a night out or have family and friends over. The CSO data tells us that, in 2023, 17.3 per cent of people in Ireland were living in households experiencing two or more forms of deprivation. Children were the most affected age group, with more than one in five experiencing enforced deprivation.

Almost half of those unable to work due to long-standing health problems or disability were affected, while the same was true for three out of eight unemployed people. Lone parents and renters are also disproportionately vulnerable. Yet employment is not necessarily a sufficient solution in and of itself. One in eight of those in employment experienced deprivation either due to a mix of inadequate wages or inadequate hours or both.

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Deprivation is, in essence, a proxy for income inadequacy and an inability to cope with cost-of-living pressures. To the extent the cost-of-living crisis is indeed a crisis, it is ultimately a crisis of income inadequacy.

So should policymakers step in to the breach and tide people over with temporary universal supports? There are a number of problems with this approach. The first is that much of the money will go to higher-income households which simply don’t need support. A universal approach therefore reduces our resources available to help those households that actually do need support. The second issue is that once-off supports only make sense as a policy response if it is believed that consumer prices are going to fall. Yet prices are very likely to continue to increase, albeit modestly, over each of the next few years. Policymakers will eventually have to decide whether to make the once-off supports permanent, or to end them. If the supports are ended, it will cause a further deterioration in living standards and an increase in enforced deprivation absent some other support. The higher prices will remain, but the supports will be gone.

The third issue is that universal once-off supports add to demand and to inflation. The added inflation will reduce the real value of the supports going to alleviate deprivation and poverty at the bottom of the income distribution. One-off measures are the wrong response to the cost-of-living shock. The reality is that the recent increase in the cost of living is structural, cumulative and permanent.

[ Irish Times poll: Cost of living tops public concerns for budget ]

So what should be done?

The Commission on Taxation and Welfare proposed a new approach to setting welfare payments based on adequacy benchmarking. This would link payments to household cost of living and to living standards. Such a consistent evidence-based approach ought to replace the current ad hoc approach to setting income supports and the commission’s recommendation should become the established budgetary approach starting in Budget 2025.

Unfortunately, the response to the cost-of-living crisis and the subsequent rise in deprivation have clearly shown the inadequacy of the current tools being used by Government. A benchmarking approach is the way to address these failures.

Dr Tom McDonnell is co-director of the Nevin Economic Research Institute

Suzanne Connolly: Helping families in poverty requires a balance of targeted and universal supports

Cost-of-living pressures are ever present. Despite inflation falling, families are still struggling to provide their children with daily essentials, such as heating; electricity; food and opportunities to engage in activities. Parents continue to go without, making sacrifices to try to provide their children with what they need. For these parents, supports around the cost of living are their number one priority for this year’s budget.

Last year in Ireland we saw the rate of deprivation increase for children. This means that more children (more than one in five, 21 per cent) went without absolute essentials such as sufficient heat or clothing. More parents couldn’t afford to provide their children with basic necessities. This was despite cost-of-living measures being put in place in Budget 2024. Without these, deprivation rates among children would have been substantially worse. Results from research commissioned by Barnardos and carried out by Amárach Research a few months ago found that almost half of parents (47 per cent) said they and their children had gone without or cut down on one or more of heat, electricity, medical and food over the past six months. More than four in five parents (81 per cent) stated that cost-of-living issues had negatively affected their children and more than a quarter (26 per cent) of parents said they are always worried about being able to provide their children with daily essentials.

Budget 2025 needs to focus on providing families with sufficient financial supports to ensure their children have access to the basic essentials needed for a decent childhood. That means having sufficient food, heating, electricity and aiming to ensure they have enough income to meet a minimum essential standard of living. This will require a balance of targeted and universal supports.

[ ‘I’m very lucky my mam feeds us twice a week’: Families struggling to make ends meet ]

Targeted supports are needed to lift those families most at risk of deprivation; those most hit by cost-of-living increases over the past few years, in particular those on lower incomes and those living in lone-parent households. Last week, Taoiseach Simon Harris said that the working family payment and the qualified child allowance are the two most effective tools if you want to lift people out of child poverty. We would like to see the Government act on this understanding and see a significant increase to these payments in next week’s budget.

The Government also needs to focus on families on the edge of poverty, who don’t qualify for existing supports, who have been pulled into deprivation over the past few years. More supports must be directed at them, for example reducing thresholds for certain support payments such as the back-to-school clothing and footwear allowance, and extending eligibility for supports such as fuel allowance.

Parents across the country have been struggling the past few years, many noticing a significant decline in the standard of living for themselves and their children. All too often they are going without essentials, putting their children first. Over time this has negatively impacted their own mental health and the wellbeing of the family.

Extending and targeting supports to families that will lift families out of deprivation would make a huge difference to the lives of children. And we in Barnardos know that childhood lasts a lifetime. The longer children experience poverty and deprivation, the bigger an impact it has on their current and future health, wellbeing and development. Increasing supports for families, particularly those struggling most, and ensuring all children have the essentials of a decent childhood is the best investment this Government can make.

Suzanne Connolly is chief executive of Barnardos