Economic growth to be revised downwards as Cabinet plans anti-inflation measures

Expectations revised in line with a recent downgrading by the Central Bank and the ESRI

Finance Minister Paschal Donohoe will bring revised estimates to Cabinet. Picture: Gareth Chaney/Collins

The Government is expected to revise downwards the predicted growth in the economy this year as a result of inflation and the Ukrainian crisis.

Finance Minister Paschal Donohoe will bring revised estimates to Cabinet on Wednesday in an update to the Government’s Stability Programme Update for 2022, which will set out macroeconomic and fiscal forecasts.

While officials in the Department of Finance still expect the economy to grow this year, expectations have been revised in line with a recent downgrading by the Central Bank and the ESRI.

Just last week the Central Bank knocked 2% off its economic growth forecast for this year, but also increased the predicted rate of inflation by 2%.

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

Vat reduction

Mr Donohoe will also bring a proposal to temporarily reduce Vat on gas and electricity from 13.5% to 9% as part of a range of measures aimed at cushioning the impact of spiralling inflation on households.

As part of this, Social Protection Minister Heather Humphreys will also bring details of a €99 bonus for those in receipt of fuel allowance, while Minister Eamon Ryan is expected to bring a memo detailing more measures to help with energy bills, including the scrapping of the PSO (public service obligation) levy on electricity bills from October.

It comes after Tánaiste Leo Varadkar said on Tuesday that said "a comprehensive anti-inflation strategy to reduce the cost of living" is now required and said that central banks across the globe should "rein in quantitative easing".

Anti-inflation plan

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

Mr Varadkar said that increased subsidies should be used to reduce costs of childcare and the Government should also look to reduce charges for healthcare, the cost of public transport and higher education.

"Other Europeans simply do not have to pay so much to see their doctor, attend a hospital, or buy medicines," he said.

"I do believe there should be pay rises and indeed further increases in pensions and welfare. I do not say that lightly.

"I also believe that it is a mistake to think that pay rises will solve the problem of inflation. Pay rises won’t bring down the price of anything. And pay rises could actually contribute to inflation and make the situation worse. That is why we have to look at these things in the round," he told a Royal College of Physicians of Ireland event.

Separately, Public Expenditure Minister Michael McGrath will bring an update to Cabinet on the single public service scheme. While there has been good progress on ensuring compliance by public sector bodies, it is understood Mr McGrath will single out some organisations in the health sector which will be asked to take steps to improve their compliance with the requirement to send out annual benefit statements to members.

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