Avoid cutting taxes in budget to prevent ‘surge’ in inflation, Tasc advises

The Government should avoid cutting taxes in this year’s budget to “prevent a surge in inflation”, according to a new report carried out by Tasc, an economic and social think tank.

The report, The State we are in: Inequality in Ireland 2023, argues additional revenue is required for the Government to “meet future challenges”. It recommends maintaining current tax levels in order to protect social services and allow for additional investment in areas such as pensions, health and climate change.

Last month, a group of three Minister of State from Fine Gael published an opinion article in the Irish Independent calling for budget tax cuts worth €1,000 for families.

However, the author of the new report Author, Dr Robert Sweeney, said any proposed tax cuts, with inflation set to fall, could instead make inflation “longer lasting”.

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“Reducing income tax might seem initially attractive, but would be a quite unwise economic strategy as inflation is still predicted to be 4.9 per cent this year and 2.5 per cent in 2024,” said Dr Sweeney. “Instead of, for example assisting families to manage costs or buy a home, tax cuts also drive general and house prices, and makes inflation longer lasting. That would be wholly counterproductive and should be resisted in budgetary planning.”

The report also states that poorer households in some cases experienced almost 20 per cent more inflation cumulatively than those at the top end of the income scale. Instead of tax cuts, the report calls for the expansion of “target supports” for those who are less well-off.

This year’s budget presents an opportunity to tackle a “cyclical reduction” in welfare income for the less well-off that tends to occur during periods of low inflation, according to Dr Sweeney.

“When inflation is low, low-income groups receive little or no increases as they may be out of paid work and prices have not risen, whereas middle and higher-income groups experience income growth in line with wage increases,” he said.

“Notwithstanding the need for one-off measures, the forthcoming and subsequent budgets, therefore, should shift from basing social welfare increases on inflation to indexation according to wages.

“Additionally, given inflationary pressures that still exist, income inequality would be best addressed through increases in the social wage, rather than money wages. An increase in public investment in childcare would be most welcome. Despite recent investment, childcare remains expensive in Ireland, acting as a barrier to employment, particularly for women.

“We recommend graduated increases in childcare spending towards 1 per cent of national income.”