Prices for a range of goods and services in the domestic economy are now rising at a level not seen since the Celtic Tiger era, the Irish Fiscal Advisory Council (Ifac) has warned.
Council chairman Seamus Coffey told the Oireachtas Committee on Budgetary Oversight on Wednesday that while headline inflation has fallen below 2 per cent, this is largely down to falling energy prices and that other areas are “seeing fast price increases”.
“We can see continued pressure on areas such as rents, medical services costs, and prices in hospitality, cafes and restaurants,” he told the committee in his opening statement.
When it comes to the things that Ireland doesn’t import, “the pressures are now similar to what we would have seen in the 2000s”, he warned.
Mr Coffey also warned the committee that the Government is adding to these price pressures by continually breaching its own tax-and-spending rule.
He cited Central Bank research, which suggests that repeated breaches of the rule, which seeks to keep annual spending increases inside a 5 per cent ceiling, has probably added €1,000 to the average annual household bill.
“The Government might put money back in people’s pockets, but by raising prices these indirect costs take it out of their pockets in a lasting way,” he told the committee.
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Ifac predicts the Government will breach the national spending rule this year by a much bigger margin than previously flagged with spending overruns in health and other areas potentially surpassing €3.5 billion by the year’s end.
The council said net spending is on course to increase by 9 per cent (from €94 billion in 2023 to just more than €100 billion in 2024) as opposed to staying within the 5 per cent limit set down in the spending rule.
It said it had expected a budget increase of about 6 per cent in 2024 this time last year but now expects the increase to be closer to 9 per cent.
The Government looks set to make a number of “questionable decisions in Budget 2025”, the committee heard from Nevin Economic Research Institute (Neri) co-chairman Tom McDonnell.
He said the Coalition’s mooted plans to cut inheritance tax by increasing the threshold to an “enormous €400,000″ would be an “extremely regressive move” benefitting a “few lucky people”.
Overall, Dr McDonnell said: “We have an economy of winners and losers. Net household wealth is at record levels on one hand, while material deprivation is rising, on the other.”
Against a backdrop of soaring living costs and stagnant wages for most people outside the top 10 per cent of earners in the Republic, he said Budget 2025 should focus on “those who cannot be fully insulated from the cost-of-living crisis and take steps to restore living standards for those most in need”.
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