Wage growth will overtake rate of inflation in 2025, Donohoe suspects

That followed a €2.3bn package last year and a €4.1bn package the year before.

Those extraordinary expenditures were made to tackle the cost-of-living crisis and runaway inflation exacerbated by the war in Ukraine and followed covid-era deployment of billions of euro in financial supports.

However, with inflation easing, Paschal Donohoe said yesterday evening that while he does not want to speculate on what next year’s budget would look like, the Government’s forecasts for 2025 suggest that wages will rise above inflation.

That would change the architecture of the budget, amid fears from some in Government that the one-off payments would become difficult to unwind.

“I’m still working on Budget 2025 at the moment,” Mr Donohoe said. 

There’s a lot of water that needs to go under a lot of bridges before we get to [Budget 2026]

“All I would say about next year, and what that would mean for the budget is ... next year will be a year in which wage growth in our economy will be ahead of the rate of inflation — I suspect for most of that year.

“That means then the real possibility that living standards will begin to rebuild, because of wage growth support by the taxation changes introduced by [Jack] Chambers.

“If that were to occur across next year, it would have a have a very big impact on the design of the budget.”

Mr Donohoe added that he does not believe the €2.2bn package will overheat the economy. He said the amount of money being spent is “a little less than a year ago”.

“If that amount of money a year ago didn’t contribute to an inflation risk, I hope the same can happen again. Of course, when you spend money in an economy, risks are always there. You would not be honest to rule them out.”

'A Bertie budget'

Amid what is generally seen as a giveaway budget, which includes tax changes across the board for workers and a €2.7bn social protection package, both ministers rejected the idea that it was what Social Democrats TD Róisín Shortall called “a Bertie budget for the ages” — referencing former taoiseach Bertie Ahern.

Both men said that opposition TDs would spend the same levels or more money if in Government.

“On one hand, they point to the difficulties in relation to cost-of-living and they condemn us for not spending more of the surplus,” said Mr Donohoe.

They can’t have it both ways. I mean, the Government has tried to get the balance right

“Everybody in opposition who is criticising the budget would spend more,” Mr Chambers added, saying that the Government had put €16bn into long-term funds.

The Irish Fiscal Advisory Council (Ifac), however, criticised the budget.

It said that the surpluses projected are “completely reliant on excess corporation tax”.

It said that the budget packages “have put money back in people’s pockets”, but they have “taken it away by pushing up prices”.