Budget to boost incomes by 2%, insulating households from inflation – ESRI

Budget 2024 will insulate most households in the State from the impact of rising prices next year, according to the Economic and Social Research Institute (ESRI).

In its annual assessment of the impact of the Government’s budgetary measures on households, the think tank calculated that the package of tax cuts, welfare increases and one-off payments announced on Tuesday would see average real household income rise by approximately 2 per cent next year, “with higher gains for low-income compared to high-income households”.

The assessment was based on an assumed rate of inflation of 3.2 per cent next year and on the basis of wages growing by approximately 5 per cent.

In the absence of tax measures including changes to thresholds and credits, higher wages can result in workers paying more in tax and losing out in net terms. However, the ESRI’s analysis concluded that households would still be better off next year when the assumed inflation and income growth rates are taken into account.

‘You couldn’t make it up’: David McWilliams gives his verdict on Budget 2024

---

Inside ‘the weirdest budget ever’: Climate bust-ups, a mortgage surprise and the Stephen Donnelly saga

---

We cannot aspire to EU-style public services and US levels of tax

---

Budget 2024 calculator: How this year’s budget will affect your income

---

“The total budgetary package is progressive and this research estimates that it will result in reductions in the at-risk-of-poverty rate of most groups, compared to a budget pegged to income growth,” the ESRI said.

It noted, however, that the reduction was largely achieved through the €2.7 billion in temporary measures contained in the Coalition’s budgetary package. Without them, numbers at risk of poverty in elderly households would actually increase by almost 1 per cent, it said.

The ESRI’s Karina Doorley explained that in Budget 2023 the real income gains for households were solely down to the Government’s one-off measures. However, she said in the budget, households gained from both the permanent and the temporary measures.

“For the second year in a row, temporary welfare measures are playing an important role in insulating households from the effects of inflation,” she said.

“With inflation moderating and wages growing strongly, policymakers should now consider benchmarking social welfare payments to provide more certainty to those dependent on them,” Ms Doorley added.

Taking the last four budgets together, the ESRI’s study found that many tax and welfare changes since 2020 had been below wage and price inflation over the same period.

“This trend is somewhat reversed by Budget 2024. However, compared to a scenario of income-indexed budgets since 2020, households will have lower purchasing power in 2024,” it said, noting this amounted to 0.5 per cent of disposable income on average, with larger losses for middle-income households.

On the Government’s housing market interventions, the ESRI said the increase in the rate of local property tax on certain vacant residential dwellings would likely increase supply. However, it said the Government’s decision to extend the Help to Buy scheme for another two years, the new tax credit for landlords, the extension to the rental tax credit and the temporary mortgage interest relief policy would all likely increase demand for housing, “putting pressure on house prices”.

Separately, Central Bank of Ireland governor Gabriel Makhlouf warned again on Thursday that the Government’s decision to break its own spending rules in the budget was likely to drive up inflation and risked damaging investment in the country.

In an interview from the IMF’s annual meeting in Morocco, Mr Makhlouf said he would have taken a “less expansionary” approach and warned the fiscal package risks undermining efforts to cool inflation.