Minister McGrath publishes assessment of State’s €12 billion fiscal response to the cost of living challenge
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From: Department of Finance
- Published on: 6 April 2023
- Last updated on: 28 November 2023
- a combination of lingering post-pandemic supply chain disruption, the rapid pace of the economic recovery and, most importantly, the Russian invasion of Ukraine, has placed upward pressure on prices, leading to a sharp rise in the cost of living
- the government’s policy response has been designed to provide assistance to those least equipped to respond while, at the same time, aiming to avoid adding to inflationary pressures
- **the overall fiscal response to the cost of living challenge has been substantial amounting to €12 billion (4½ per cent of GNI*) according to a report published today by the Department of Finance**
- overall, household transfers including electricity credits account for almost half of the overall fiscal response, with tax measures accounting for one-third and the remainder composed of business and other expenditure supports
- the fiscal response has been timely, progressive and has primarily consisted of temporary supports, which are less likely to exacerbate inflationary pressures
- **the cost of living measures build on extraordinary level of support during pandemic. For completeness purposes, the document also sets out the final cost of the supports put in place during over the 2020-2022 period. Over €32 billion (c. 14 per cent GNI*) of direct fiscal support was provided to households and business during the pandemic, a scale of public intervention that is unprecedented**
The Minister for Finance Michael McGrath has today published an assessment by his department on the fiscal response to the cost of living challenge. The aim of the analysis is to outline the key objectives of the government’s strategy and to document and quantify the fiscal response.
Commenting on the analysis set out in the report, Minister McGrath said:
“Government has responded decisively and effectively to the cost of living challenge, most recently with a suite of supports amounting to €1.3 billion announced in mid-February.
"A total of €12 billion – 4½ per cent of national income – has now been provided in direct relief to absorb some of the impact and ease the burden of inflation on households and businesses.
"Our response to the cost of living challenge is, by necessity, different to our response to the pandemic. Inappropriate or excessive fiscal interventions by Government would add fuel to inflation and result in fiscal policy itself becoming part of the problem. In designing its response, Government has also been conscious of rising borrowing costs – the cost of 10-year money is now in excess of 2½ per cent compared with essentially 0 per cent during the pandemic.
"Government has also been conscious of the need to calibrate the policy response in a manner that does not compromise the necessary transition to carbon-neutrality.
"Against this background, Government has, I believe, struck the right balance between supporting households and firms, while not jeopardising key fiscal and climate sustainability objectives.As we address the challenges of today, Government must also be conscious of the future. In the longer-term, alongside the need to meet the costs associated with demographic changes and finance the green and digital transitions, a future decline in tax receipts from the corporate sector is possible. This means that it is more important than ever that the public finances are kept on a sustainable trajectory so that we ensure we are in the strongest possible position to meet future economic challenges as they arise.”
Notes
| Table 1: Fiscal support by package | |
|---|---|
| Cost of living package | € billion |
| Budget 2022 | 1.7 |
| Post-Budget 2022 cost of living package | 1.3 |
| Budget 2023 one-off package^ | 4.6 |
| Budget 2023 permanent measures^^ | 3.1 |
| Post-Budget 2023 cost of living package | 1.3 |
| TOTAL | 12.0 |
Note: Rounding can affect totals
^ On a net basis, the one-off cost of living package was estimated to amount to €4.1 billion at the time of the Budget, as some measures were expected to be funded via expenditure savings. Figures refer to amounts estimated at the time of Budget 2023 with the exception of TBESS which is based on the estimate set out in the Revised Estimates 2023.
^^ This only refers to measures that have a direct impact on cost of living pressures.
Source: Department of Finance and Department of Public Expenditure, NDP Delivery and Reform.
| Table 2: Fiscal response by measure | |
|---|---|
| Cost of living measure | € billion |
| Tax measures | 3.9 |
| Electricity credits | 1.6 |
| Households transfers | 4.2 |
| Business expenditure supports | 1.5 |
| Other measures | 0.8 |
| TOTAL | 12.0 |
Note: Rounding can affect totals
Source: Department of Finance and Department of Public Expenditure, NDP Delivery and Reform.