Government says it will prioritise the most vulnerable amid limits on what it can spend
Tánaiste Leo Varadkar has called for a “comprehensive anti-inflation strategy” to deal with rising prices, which he said could “go on for years”.
The strategy should include tax indexation, childcare subsidies, a “substantial” welfare and pension package, reduced insurance costs and more social and cost rental homes.
“I believe the spike in inflation is not temporary,” he told the National Economic Dialogue. “It could go on for years. It will moderate, slow but I don’t see a return to very low inflation any time soon.
“Governments can do more by helping to reduce some of the underlying high costs that Irish people endure.”
However, he said there was “a limit” to what the Government can do to offset rising energy costs.
Finance Minister Paschal Donohoe hinted at risks to economic growth as the Government wrestles with next year’s budget.
“So many of the risks that we identified as being potential a number of months ago are now the ones that are happening and that we are going to have to deal with,” Mr Donohoe told the same event in Dublin Castle earlier.
In April the Government predicted the domestic economy would growth by 4.2pc this year and 3.9pc in 2023), while gross domestic product would expand by 6.4pc this year and 4.4pc in 2023.
The European Commission and OECD have both trimmed their forecasts since then, coming in lower than the Government’s April estimates.
While Mr Donohoe said the Government would “not be standing passively by as these kinds of risks develop” he insisted that spending would have to be reined in to maintain the country’s creditworthiness as borrowing costs start to rise.
“We can help but we can’t confront and insulate ourselves from all of change that is under way, and we do have constraints and we do have limits in the decisions we need to make.
“The era of Covid, in which we could borrow so much for so little – that has now come to an end.”
The Government expects a small budget deficit this year and a small surplus in 2023.
The Taoiseach also dampened expectations of a giveaway budget, insisting that the Government will not chase inflation “on a month to month basis”.
Micheál Martin insisted the upcoming budget will be a “cost of living budget” and warned next winter “could be the most significantly difficult period of this crisis so far”.
He said the Government needed to prioritise the people most vulnerable to price hikes and take care not to push up the cost of living by injecting too much cash into the economy.
“Our priority will be to balance addressing the rising cost of living against the risk of exacerbating these same inflationary pressures.”
He also brushed off questions about putting corporate tax receipts in a rainy day fund, saying the “immediate priority of this year’s budget will be the cost of living”.
The National Economic Dialogue is a key step in the budget making process. It will be followed by the summer economic statement next month.