Financial News

State’s €12 Billion Fiscal Response to Cost of Living Challenge

The Minister for Finance Michael McGrath has 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.”

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.

Minister McGrath continued, “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.”

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