Changes to direct taxes, welfare measures and childcare supports in this week’s Budget announcement will result in “small income gains” for people, according to an analysis by the Economic and Social Research Institute (ESRI).
The ESRI found the level of supports is “ahead of forecast price growth of 3% and broadly in line with forecast wage growth of 4.1% for 2027”.
The research said the measures result in “small income gains compared to a budget pegged to price growth” and “almost no average changes compared to a budget pegged to wage growth”.
It also noted that lower-income households will gain compared to “both price and wage indexed policies”, while higher-income households will see much smaller changes in their disposable income or “no change”.
According to the ESRI, some of the “protective effect” of the Budget for the lowest-income households is due to the new €500 per year cost-of-disability payment.
Previous ESRI research found the extra consumption needs of households with disabled members can reach 50% of their disposable income.
Associate Research Professor with the ESRI Claire Keane said while it is “welcome to help with the additional living costs of people with disabilities, the new cost-of-disability payment will only be received by a proportion of people with a disability and falls below the actual extra costs they likely incur”.
The ESRI also said the increased childcare supports in Budget 2027 will “reduce childcare costs for families who use formal childcare” but that the overall effect of the Budget package – including these measures – will “hold child poverty relatively constant”.
It said that while the increased childcare supports “may indirectly reduce child poverty through increased parental labour supply, this will require the supply of formal childcare to expand”.
The ESRI said “many more” measures are needed in this area to achieve the Government target for “child consistent poverty of 3% or below”.
Karina Doorley, ESRI Associate Research Professor, said a “second tier of child benefit remains the most effective way of meaningfully reducing the number of children experiencing poverty and deprivation”.
With regard to energy supports in the Budget, the research finds that because the reduction in carbon tax on home heating oil and gas “is untargeted to the extent that it benefits all households” using these fuels, it makes the measure expensive and “reduces the incentive for households who can afford to decarbonise to do so”.
The ESRI said targeted measures that supported low-income households would have maintained this incentive “while protecting the most vulnerable groups”.
Taking the last seven budgets together, the research indicates that since before the Covid-19 pandemic households are “slightly worse off”, but “those in the lowest-income group have seen substantial income gains”.
As a result, the ESRI said policy changes “have been nudging poverty rates down” for all groups.
Meanwhile, in its assessment of the wider economy the ESRI notes it continues to grow “robustly”, boosted by the artificial intelligence sector.
It said these effects “are being felt in Ireland as investment and exports are rising on the back of the AI expansion”, while also pointing out “notable risks” if there is a financial hit to the sector.
According to the research, due to the “soft Budget constraints from corporation tax increases” Government policy is trying to “jointly increase expenditure on day-to-day service provision, address bottlenecks and reduce taxation”.
It described this approach as “arguably too loose”, adding the “reliance on unpredictable corporation tax receipts is a rising vulnerability”.
Commenting on the situation with corporation tax, Research Professor at the ESRI Conor O’Toole said the “underlying risks” suggest “larger surpluses are warranted”.
He added that savings buffers “should be built up to manage any future downturn”.
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