Dáil budgetary committee seeks more targeted measures to combat inflation

Any further Government measures to address the continuing cost-of-living squeeze should be targeted at lower income, rural and older households, the Oireachtas Committee on Budgetary Oversight has said.

In a report ahead of next week’s Stability Programme Update (SPU) from the Government, the committee singled out those groups as the most vulnerable to the current surge in energy costs.

This is because these households typically spend a greater proportion of disposable income on fuel, energy and transport. More targeted supports, the committee said, would help alleviate the financial stress on the hardest-hit households while limiting the potential of adding to inflationary pressures.

The committee also recommended that all future measures be accompanied by an analysis of the expected impact on different households and income profiles.

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The Government will next week publish its latest SPU, which sets out its growth and tax projections for the year. It comes at a time of increased uncertainty about the economic outlook, aggravated by Russia's invasion of Ukraine.

The SPU is also expected to include a forecast on the potential impact of a major energy supply shock to the Irish economy.

In its report the committee noted that the Ukrainian war had created a shock to growth that was not anticipated, while adding to existing inflationary pressures in the Irish economy.

The annual rate of inflation jumped to a 22-year high of 6.7 per cent in March and this was before a spate of recent energy prices have been factored in, indicating it is likely to go higher.

Tax receipts

The committee also pushed for excess corporation tax receipts – above what is considered sustainable – to be placed in a new rainy day fund and used only for one-off spending.

Exchequer returns, published this week, show the Government has collected just under €1.9 billion in receipts from the business tax this year, 224 per cent up on last year, although this reflects several earlier-than-expected payments from companies that will not now accrue later in the year.

Launching the report, committee chair Neasa Hourigan of the Green Party said the SPU was an important part of the budgetary process.

“Pre-SPU scrutiny is an annual component of the committee’s work programme, and enables the committee to have an informed engagement with the Minister of Finance on the medium-term fiscal strategy,” she said.

“The committee has set out some risks to the economy that will have to be considered and addressed in fiscal policy. Inflation and the consequences of the Russian invasion of Ukraine will have a significant impact on the Irish economy and require fiscal responses,” she said.

The Government has so far reduced excise duty on fuel, provided households with a once-off energy credit and increased the fuel allowance, but Opposition parties are calling for more action.

In its report the committee noted that the pandemic had exacerbated the trend for increasing public debt but agreed with the Central Bank that the traditional debt ratio was no longer considered useful for the purposes of long-term fiscal sustainability.

Measure of risk

Instead borrowing costs were a more suitable measure of risk, it said, noting these could be exacerbated by higher interest rates in the future.

In the context of EU-wide discussions over fiscal rules, which have been suspended since the onset of the pandemic, it recommended that the Government “push strongly for certain well-defined expenditure areas, such as climate and public housing spending, be excluded from the fiscal rules.”

It noted that member states such as France and Italy were both urging for the revamped rules to be made more accommodating toward public capital investment.