One-off budget measures will 'insulate' families from price rises
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One-off measures announced as part of Budget 2023 will insulate most households from rising prices this winter, according to research from the Economic and Social Research Institute (ESRI).
The ESRI has said that welfare increases in 2022 and 2023, together with one-off measures, are large enough to leave the lowest-income households better off on average than they would have been had welfare payment rates risen in line with inflation both this year and next.
However, below-forecast inflation increases to tax credits and welfare payments next year will mean many lower-income households will experience real-term cuts in living standards in the latter half of 2023 without a repeat of the welfare bonuses, lump-sum payments, and household energy credits.
While above-inflation increases to the income tax standard rate cut-off will mitigate the effect of inflation on higher-income households, most Universal Social Charge and PRSI bands were frozen, and tax credits indexed below inflation, said the ESRI.
The effect of this is to reduce the after-tax purchasing power of lower earners who do not earn enough to pay income tax, though some of these will gain from an increase to the minimum wage.
The increase in the universal component of the national childcare scheme of 90c per hour will 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 such as childminders, used by a third of parents paying for childcare.
The ESRI also noted the Government announced a range of interventions in the housing market, including some supply-side measures such as a triple rate of Local Property Tax on certain vacant residential dwellings.
It also announced the extension of the Help to Buy scheme for another two years at a cost of €350m, as well as the introduction of a new levy on certain concrete products to part-fund the (Mica) defective concrete blocks redress scheme.
“Given robust demand for housing, combined with long-standing supply constraints, the burden of this new levy is likely to fall on the residents of newly-built homes rather than on industry," said the ESRI.
ESRI research officer Barra Roantree also said: “Our research shows the Government’s approach to insulating households from the recent rise in energy prices has been effective.
ESRI senior researcher Karina Doorley said the one-off measures announced as part of Budget 2023 will “substantially cushion real incomes”.
“However, most of the permanent changes to tax and welfare measures benefit those on higher incomes," she said.
“Policymakers may need to consider benchmarking social welfare payments once the inflation crisis has passed, to ensure that they provide adequate income for recipients."
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.”