Pressure for action on cost of living amid fears of fuelling inflation

The political pressure is growing for further Government action on the cost of living – but there is little consensus on what measures are possible, how far they should go and how quickly they can take effect. And there are significant fears that any Government intervention could actually fuel inflation – and make the problem worse.

One of the signs that Government action in any field is in the offing is when Tánaiste Leo Varadkar tells his TDs that “something must be done”. So Mr Varadkar’s indication to last night’s meeting of the Fine Gael parliamentary party that the €100 electricity subsidy was “not enough” and that “more needs to be done to help families” was a clear sign that further measures can be anticipated in the coming weeks.

For his part, Taoiseach Micheál Martin told his TDs that the Government would look at further action to “enable people to cope with cost of living increases”.

An important decision-making point will come at next week’s Cabinet committee on economic affairs, which is due to meet on Thursday, sources say. The same committee discussed the issue at its meeting before Christmas, when a long discussion between the Taoiseach, Tánaiste, Green Party leader Eamon Ryan and the Ministers for Finance and Public Expenditure Paschal Donohoe and Michael McGrath resulted in the €100 subsidy currently being legislated for in the Oireachtas.

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But sources say there was strong opposition from the finance and public expenditure quarters at that meeting about any package of measures that could be seen as a “mini-budget”. This is not just because such a move would open the door to a flurry of claims and demands, sending a signal to markets that the Government’s spending discipline is up for grabs, but also because it could actually fuel inflation over the medium term, thus making worse the problem it is supposed to solve.

There is still a residual memory in Fianna Fail from the 2004-2007 period of the dangers of chasing the cost of living.

Divide

If there is a divide in Government, it is more between Mr Donohoe and Mr McGrath on one side favouring caution, with the Tánaiste and Green leader on the other urging action. The Taoiseach is somewhere between the two camps, recognising the political need for action, but fearing its economic effects.

The three party leaders discussed the issue last Monday night, it is understood, and agreed that officials from the Department of Finance and the Department of Public Expenditure should bring forward proposals for consideration next week. It’s understood that the Department of Finance’s chief economist John McCarthy briefed a meeting of senior officials yesterday, telling them that inflation should begin to ease, having peaked in the last quarter of 2021.

But political pressure will continue to grow in the meantime. This morning, Sinn Féin’s Pearse Doherty demanded a range of actions, including increasing social welfare payments by €5 a week and cancelling carbon tax increases, while Fianna Fail’s Willie O’Dea told RTÉ that “people are suffering as we speak . . . time is of the essence.” The Labour Party said that “actions not words” were needed.

Senior Government figures said that actions would almost certainly be taken – but played down suggestions of a dramatic package of measures. In the background hovers the spectre of the famous politicians’ syllogism: “We must do something. This is something. Therefore we must do this.”