Economic growth to be revised down as Cabinet plans anti-inflationary measures

The government is expected to revise downwards the growth forecast for the economy this year due to inflation and the Ukrainian crisis.

Finance Minister Paschal Donohoe will present revised estimates to Cabinet on Wednesday in an update to the government’s 2022 stability program update, which will set out macroeconomic and fiscal forecasts.

While Finance Ministry officials still expect the economy to grow this year, expectations have been revised based on a recent downgrade by the Central Bank and ESRI.

Just last week, the Central Bank cut its economic growth forecast for this year by 2%, but also raised the expected inflation rate by 2%.

The bank still expects modified domestic demand, its preferred measure of economic health, to grow 4.8%; however, this is significantly lower than the 7.1% growth predicted just three months ago.

VAT reduction

Mr Donohoe will also present a proposal to temporarily reduce the VAT on gas and electricity from 13.5% to 9% as part of a series of measures to cushion the impact of spiraling inflation. on households.

As part of this, Social Care Minister Heather Humphreys will also bring details of a €99 bonus for fuel allowance recipients, while Minister Eamon Ryan is expected to bring a note detailing more measures to help to pay energy bills, including the abolition of the OSP (public service obligation) levy on electricity bills from October.

It comes after Tánaiste Leo Varadkar said on Tuesday that “a comprehensive anti-inflationary strategy to reduce the cost of living” is now needed and said central banks around the world should “contain quantitative easing”.

Anti-Inflation Plan

Mr Varadkar said the anti-inflation plan should have six components. These include wage increases and “industrial peace”, lowering the tax burden on middle-income earners “so they can keep their pay rise if they get one”, and tougher laws to reduce insurance costs.

Mr Varadkar said increased subsidies should be used to reduce childcare costs and the government should also seek to reduce health costs, the cost of public transport and higher education.

“Other Europeans simply don’t have to pay so much to see their doctor, go to hospital or buy medicine,” he said.

“I think there should be pay rises and even further increases in pensions and welfare. I don’t say that lightly.

“I also think it’s a mistake to think that wage increases will solve the inflation problem. Wage increases won’t lower the price of anything. And wage increases might actually contribute to inflation. and make it worse. That’s why we have to look at these things as a whole,” he told a Royal College of Physicians of Ireland event.

Separately, Public Expenditure Minister Michael McGrath will provide an update to Cabinet on the single public service regime. While notable progress has been made to ensure compliance by public sector bodies, it is understood that Mr. McGrath will single out certain health sector organizations that will be asked to take action to improve their compliance with the duty of care. send annual statements of benefits to members. .

Finally, there will be an update note from the Taoiseach on Ukraine and the humanitarian crisis.