Extra cost-of-living package of up to €1bn planned for budget day

Up to €1 billion could be made available on budget day for new measures before the end of the year to alleviate the cost-of-living crisis, Government sources say.

While the exact size of the package of “once-off” measures is not yet agreed, Minister for Public Expenditure Michael McGrath is set to open the doors to significant spending for in-year measures, with more electricity subsidies and a bonus welfare payment being examined.

These measures will be separate from the €6.7 billion budget for 2023, and will focus on interventions to be rolled out this year, rather than lasting changes to the tax and welfare system or departmental allocations to be confirmed in the budget, which traditionally kick in the following year.

The precise size of the once-off package is to be determined in the coming weeks during meetings of the Coalition leadership.

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Mr McGrath is leading on the cost-of living package for this year, with engagement under way with other departments to narrow down options.

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A senior source said the Government had an “acute sense” of the scale of the challenge facing households and was committed to a “substantial intervention”, adding: “Look at how they’re tying themselves up in knots on this issue in the Tory leadership election. We know we have one shot at getting this right in the budget and we intend to take it.”

Bilateral meetings at ministerial level on Budget 2023 will accelerate in early September, with both the cost-of-living package and the wider budget expected to be nailed down ahead of the budget at the end of the month.

Projected costs

A repeat of the €200 electricity credit granted earlier this year would cost about €400 million, while budgetary documents released this week show that a double week payment for those in receipt of weekly welfare allowances, akin to the Christmas bonus, would cost just under €312 million. An additional week of fuel allowance payments, which would reach over 370,000 low-income households on social protection payments, would cost €12.9 million.

Speaking earlier this week, Minister for Finance Paschal Donohoe would not be drawn on the scale or nature of the one-off measures, saying it would be “far later” in September before that figure was agreed, and that the August exchequer returns as well as early indicators of the tax take for September would play into the final reckoning.

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While the amount to be given in once-off measures is still under debate, senior Government sources are adamant that the €6.7 billion for Budget 2023 is unlikely to change, with focus instead moving to the relative size of the tax and welfare packages within the budget, the degree to which they are supplemented by once-off measures and how that affects spending decisions across other ministries.

The final shape of the budget will also be determined by whether or not a public pay deal is struck between the Government and public sector unions. Negotiations collapsed earlier this year over a deal worth €1.2 billion. Mr McGrath has already indicated that the cost of a new deal would have to come out of the overall package available for new spending — some €2.7 billion.

There is also an expectation that a payment will be made to replenish the rainy day fund, the State’s countercyclical spending buffer designed to absorb unanticipated economic shocks. However, Government sources say there may not ultimately be a direct relationship between how much is apportioned to the fund and how much is given over to in-year measures.