Budget tax and welfare changes will lead to ‘small income gains’ – think tank

Tax and welfare changes announced in Budget 2025 will result in “small income gains” for households on average next year, the Economic and Social Research Institute (ESRI) has said.

This was calculated compared to a budget indexed to forecast income growth, according to research presented by the think tank.

The ESRI said the tax cuts, welfare increases, cost-of-living measures and indirect tax cuts had “grown broadly in line” with forecast wage growth of 4.2% for 2025 compared to the 2024 financial package.

But it added that there are smaller gains for middle income households.

It also found that when the last five budgets are taken together, households are “slightly worse off” by about 0.7% of disposable income compared to a scenario of income-indexed budgets since 2020.

When initiatives such as free schoolbooks and meals rolled out over that period are taken into account, the average loss was lower by just 0.3% of disposable income, showing that non-cash benefits can have “a measurable impact” on incomes.

Associate research professor at the ESRI, Dr Claire Keane, said: “The withdrawal of cost-of-living policies, which has begun in Budget 2025 with the reduction in energy credits, may increase the number of pensioner and disabled households at-risk-of-poverty in the future, unless there is an accompanying increase in core welfare rates.”

Dr Karina Doorley, another associate research professor at the ESRI, said the budget would have “little effect on reducing overall poverty or child poverty”.

“The exchequer cost of the untargeted cost-of-living measures, such as energy credits and the double child benefit payment, would have been enough to finance a second tier of child benefit which could lift 40,000 children out of poverty.”

ESRI research professor Kieran McQuinn said that from a macroeconomic perspective, “the increased levels of capital spending, coupled with the enhanced commitment to the investment funds established, does offer the potential to put investment on a more sustainable footing in the Irish economy”.

The research said that some elements of the tax-benefit system, such as child benefit, the living alone allowance and fuel allowance have been “frozen” in nominal terms.

This, along with the planned PRSI (pay related social insurance) increase in 2025, will lead to “small income losses” for some households compared to a budget indexed to forecast income growth.

The reduction in the energy credit from 450 euro in Budget 2024 to 250 euro in Budget 2025 will also “disproportionately affect” households on fixed incomes, such as pensioners.

Temporary cost-of-living measures, unveiled on Tuesday as being worth 2.2 billion euro, are providing “considerable assistance to many households”, the ESRI said.

But without them, the at-risk-of-poverty rate of retired households would be five percentage points higher than estimated for 2025.

Similarly, without temporary cost-of-living measures, the at-risk-of-poverty rate of disabled households would be three percentage points higher.