Alcohol price hikes are helping to pump up the rate of inflation

Minimum unit pricing (MUP) means the cheapest can of lager is €1.70

Hugh O'Connell

Minimum unit pricing (MUP) on alcohol is contributing to rising inflation this year, the Department of Finance has admitted in documents that also warn that the government response to the cost-of-living crisis will hamper plans to cut taxes and increase welfare in the Budget.

The overall cost of alcoholic beverages has risen nearly 8pc this year as a result of the introduction of MUP, which came into effect at the start of the year and set a floor price of 10c per gram of alcohol.

This has meant that the cheapest can of lager is €1.70, a bottle of wine can be sold for no less than €7.40, and a 700ml bottle of whiskey or gin must retail for at least €22.09.

“Minimum alcohol pricing — introduced at the beginning of the year — is also contributing to the annual increase,” according to a briefing document for Coalition leaders and senior ministers in February.

The newly-released documents were prepared by the Departments of Finance and Public Expenditure prior to the war in Ukraine and outlined inflation developments and options to consider prior to the February 10 announcement of a €505m package to mitigate the cost of living.

They repeatedly warned that any measures announced would have to be temporary and not become part of core expenditure as this would affect Budget 2023 measures.

The Government last month announced a cut to excise duty costing €320m, bringing the cost to the Exchequer of mitigating the cost of living to €825m in the first quarter of 2022.

“Further permanent increases in core expenditure in 2022 would further reduce the amount available for measures in Budget 2023,” a briefing paper for the Cabinet Committee on Economic Recovery and Investment on February 10 states.

The document also outlined some of the measures that were considered but ultimately not announced.

They included a €5m student assistance fund, waiving state exam fees (cost €10m), a 50c reduction in prescription charges (cost €18m), waiving hospital charges (cost €26m), and giving an extra €3.4m to St Vincent de Paul and Protestant Aid.

The document said measures in Education, Health and Transport would have a full-year cost of €200m and that talking into account the need to fund schemes for Mother and Baby Homes survivors, and for homeowners affected by mica, it would “significantly reduce the scope to allocate funding towards other Programme for Government commitments in Budget 2023”.

A separate document prepared for the three Coalition leaders stated: “Reductions or waiving of fees in 2022 would most likely create an expectation of such measures continuing into 2023 — if this was the case, it would further decrease the limited available expenditure for any new measures in Budget 2023.”

Meanwhile, amid growing pressure to alleviate the cost of living, senior sources in the Coalition have downplayed expectations of a new suite of measures in coming weeks.

“The situation is very fluid at the minute, so we can’t react on a weekly basis,” said the senior source.

While Taoiseach Micheál Martin has said any further measures would be targeted at low income households and families with children, it is understood Tánaiste Leo Varadkar favours both targeted and universal measures.

Mr Varadkar told the Institute of International and European Affairs last month that increases in spending should focus on reducing childcare and health fees for families.

Meanwhile, Mr Varadkar and Finance Minister Paschal Donohoe are likely to face down backbench discontent over the planned increase in carbon tax next month.

Fine Gael TDs have submitted a motion to the parliamentary party seeking to have the increase deferred.

But a senior Fine Gael source said the increase is legislated for and any deferral would mean a double increase at a later point.