Government cannot fully absorb increased cost of living, Paschal Donohoe says

The Government will be unable to fully absorb increases to the cost of living, the Minister for Finance has told the Oireachtas Budget Oversight Committee.

Paschal Donohoe said the causes of inflation are not within the Government’s control and there is a limit to what it can do to offset rising energy costs.

Mr Donohoe said that once Covid-19 restrictions eased it seemed like the Irish economy could have returned to some degree of normality, but this quickly changed once Russia invaded Ukraine.

He said a wide range of tax and expenditure measures, costing more than €2 billion, had been introduced in response to the war. However, Opposition TDs said those measures were not being felt on the ground.

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People Before Profit’s Richard Boyd Barrett said more sweeping measures were needed.

“If people can’t afford to live here, they won’t come here [for employment to fill in labour shortages] and many qualified young people are just leaving.”

He said the Government needed to be doing “a hell of a lot more” to help people with rents and energy costs. He called for the introduction of rent controls as opposed to a Housing Assistance Payment, which he said put public money directly into the pockets of landlords.

Sinn Féin TD Pearse Doherty said people reliant on social welfare were some of the most vulnerable in society and that their core payments should increase.

Mr Donohoe said the Government had already provided an additional three weeks’ payment of the fuel allowance, lifted the public service obligation levy on energy bills and extended a reduction in excise duty until mid-October.

Rainy day fund

The Minister also expressed an interest in rebuilding the rainy day fund, which was used up completely during the Covid-19 crisis.

“You can only begin the path to rebuilding a rainy day fund when you are in a position of balance in the national finances, or surplus. I think it is a very difficult sell to explain why we are borrowing to put money into a rainy day fund.”

There are no immediate plans to recreate the fund, according to the Minister, who said he said he would like to see restored it in the future when the State’s finances were more stable.

The Department of Finance is forecasting a general government deficit of €1.9 billion for this year, resulting in a combined deficit of almost €30 billion since the start of 2020. A marginal surplus of around €1 billion, around a half of 1 per cent of national income, if forecast for next year, according to the department.

However, the Minister stressed that public debt remains high at €235 billion. He said the era of “free money” being made available to governments to manage the Covid-19 pandemic is over, and he will advocate for balanced books and low levels of borrowing