Government says new measures will ease inflation
Minister for Finance Paschal Donohoe: 'Clear that the conflict in Ukraine is already having a negative impact on the Irish economy.'
Finance Minister Paschal Donohoe has insisted that no new additional measures to fight inflation will be necessary before October's Budget.
Mr Donohoe was speaking after confirming measures to combat inflation that included a reduction to 9% in the VAT rate for gas and electricity from May until the end of October and a further reduction in the excise tax on gas and oil by 2.7%, to further offset cost increases on farmers and others in the agricultural sector.
The finance minister was speaking to reporters as he unveiled updated official economic forecasts which will be submitted to the European Commission.
“I’ve now used and put in place all of the tax measures that I can,” Mr Donohoe said, adding there was currently "no capacity" to create any more tax measures to tackle the cost of living crisis.
Public Expenditure Minister Michael McGrath added his concern that cost of living pressures from inflation can not be solved through a wage spiral.
“We cannot through wages alone address the inflationary pressures that are there because that could potentially cause damage to Ireland’s relative competitive position,” said Mr McGrath.
The latest forecasts for the EU reflect expectations that war in Ukraine will slow rather than stop economic expansion this year, as the Department of Finance pared its growth forecasts and hiked its inflation projections.
Government expects modified domestic demand, the most accurate measure for growth for the domestic Irish economy, to expand by 4.2% this year.
That compares with 6.5% growth rate in 2021, and the 6.5% rate it had forecast for 2022 at the time of budget in October.
The slowdown is mainly due to its expectation households will respond to rapidly climbing inflation by spending 4.5% less than they would otherwise have by the end of 2023.
The Department of Finance sees inflation averaging 6.2% this year, almost three times the rate it expected in its last set of forecasts six months ago, before falling to 3% next year and 2.2% in 2024.
Under a scenario where oil and gas prices are 50% and 75% higher than forecast, inflation would jump by an additional two percentage points this year, peaking at 9.25% in the third quarter and weigh on consumer spending.
