One-off Budget measures will insulate most households from inflation this winter

One-off measures announced as part of Budget 2023 will insulate most households from rising prices this winter, according to new research presented today at the Economic and Social Research Institute (ESRI) post-budget briefing. The research shows 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 terms 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. 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 like childminders – who are used by one-third of parents paying for childcare.

The government also announced a range of interventions in the housing market, including some supply-side measures like 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 2 years at a cost of €350 million, 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.

Barra Roantree, a Research Officer at the ESRI, said: “Our research shows the government’s approach to insulating households from the recent rise in energy prices has been effective. 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.”

Karina Doorley, a Senior Research Officer at the ESRI, 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. Policymakers may need to consider benchmarking social welfare payments once the inflation crisis has passed to ensure that they provide adequate income for recipients.”

Kieran McQuinn, a Research Professor at the ESRI, 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.”