Cost-of-living supports must be ‘affordable,’ McGrath says

It’s important for cost-of-living supports to be affordable and get the “best possible result from the use of public money”, Minister for Finance Michael McGrath has said ahead of Cabinet discussions on budgetary measures this week.

Ministers are set to discuss taxation, VAT on gas and electricity, household bills, excise reductions on petrol and diesel, and the business energy support scheme among other policies on Thursday amid appeals for help with the cost of living for the hardest-hit households.

“I do expect it will be next week before final decisions are taken and, depending on the outcome of those discussions, there may be a need for financial resolutions to be brought before the House next week to give effect to those decisions,” Mr McGrath told reporters as he attended a meeting of European Union finance ministers.

[ Irish economic growth helps EU narrowly avoid recession ]

“We acknowledge that there are pressures on households and indeed on businesses,” he continued.

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“We have to look at it in the round about what the overall cost of the package is to make sure that it is affordable for the country, that it represents the best and most efficient use of taxpayers’ money, and that it represents the final intervention before the next budget.”

Mr McGrath said there had been good engagement with representatives of the tourism and hospitality sector at a meeting on Monday evening, at which he and Minister for Public Expenditure Paschal Donohoe received feedback on the practical implementation of the business energy support scheme, which offers subsidies for businesses’ energy bills.

Also on the agenda was the sector’s reduced 9 per cent VAT rate, which was cut from 13.5 per cent to help the industry at the outset of the pandemic, a measure that is due to expire and revert to the higher level at the end of February.

The businesses had “outlined from their perspective the value of the VAT reduction” and the Government would now “consider all of those contributions in the mix when we’re making decisions in the days ahead”, Mr McGrath said.

[ From electricity credits to child benefit: What cost-of-living measures will be renewed? ]

New economic forecasts showed an improved outlook for the EU this year and that Ireland was set to continue to have the strongest growth in the union, driven by continued strong foreign investment.

A slump in energy costs since their peak last August has helped to bring inflation down across the union, and the latest European Commission forecasts indicate the inflation rate in Ireland will subside to 4.4 per cent overall in 2023.

The reduction in wholesale energy prices is taking time to feed through to consumers, however, and households continue to be under pressure, underlined by a Barnardos survey that indicated an increase in the use of food banks.

The EU finance ministers gathered to discuss a potential reform of the union’s fiscal rules, as Mediterranean countries call for an eased approach that would allow them to increase investment and to spur growth.

The so-called Stability and Growth Pact rules, which set down that national budget deficits should not exceed 3 per cent of gross domestic product and that debt should remain lower than 60 per cent, have been suspended since the outset of the pandemic to allow governments to offer economic supports through the crisis.

[ Unemployment in OECD remains at 4.9% low despite cost-of-living pressures ]

The European Commission has proposed tweaking the rules before their reintroduction to create tailored debt-reduction paths for each country, something EU officials say would be both more realistic and more strictly enforced than the widely flouted current rules.

But the meeting underscored that member states remain divided on the issue as fiscal hawk Germany expressed its opposition to rules that are shaped too strongly by individual countries, with finance minister Christian Lindner saying that debt- and deficit-reduction paths needed to be “credible” and “predictable”.

Mr McGrath said that Ireland was supportive of the commission’s proposals, and that there should be strengthened co-ordination of fiscal policy across the EU as well as recognition of each country’s “specific circumstances”.