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Budget measures to result in small income losses next year - ESRI

The research institute said the withdrawal of temporary cost-of-living measures will result in a reduction in households' standard of living next year
The research institute said the withdrawal of temporary cost-of-living measures will result in a reduction in households' standard of living next year

The measures announced in Budget 2026 will result in small income losses next year, according to an analysis from the Economic and Social and Research Institute.

In its post-Budget briefing, the ESRI said the losses will average 2% of household disposable income.

The organisation said the withdrawal of temporary cost-of-living measures is "responsible for much of this effect".

The ESRI said there is variation in how the Budget will affect households of different income levels, with slightly higher losses, of 2.5% of household disposable income, expected for low-income households.

The research institute said the withdrawal of temporary cost-of-living measures, which have been a feature of the last number of budgets, will result in a reduction in households' standard of living next year but it also said withdrawing the measures was "inevitable".

"This loss will be felt across the income distribution, with low-income households losing significantly more as a proportion of their disposable income compared to high income households."

The ESRI has concluded that the withdrawal of the temporary measures will result in "losses of 4.1% of disposable income for the lowest income households compared to losses of 0.3% for higher income households".

The analysis found that the losses will be exacerbated for high-income families due to "the freeze to tax bands and credits, which amount to an effective tax rise if wages grow at their forecasted rate of 3.7% in 2026".

The organisation said for low-income families, the withdrawal of one-off measures will be "partly cushioned by the welfare package, which is mostly above forecast inflation and wage growth".

And if they are passed on to consumers, the ESRI said the extension of the VAT cut to electricity and gas and the introduction of a cut to VAT on hospitality and hairdressing "may result in small income gains, which are larger for high income households".

Associate Research Professor at the ESRI Claire Keane said the "inevitable withdrawal" of the temporary cost-of-living measures will impact those on lower incomes more.

"Some, but not all, of this loss is compensated by increases in social welfare rates that are ahead of both price and wage growth," she said.

The ESRI said the budgetary measures targeted at children, such as increases to the Child Support Payment and the Working Families Payment, "are well-targeted".

"However, their effect on child at-risk-of-poverty rates will be small as they are accompanied by the withdrawal of many temporary measures."

The analysis estimates that these measures will lift around 2,000 children out of income poverty, compared to a budget pegged to income growth.

However, it said many more targeted measures will be necessary to achieve the government target for child consistent poverty of 3% or below.

Associate Research Professor at the ESRI Karina Doorley said Budget 2026 begins the process of tackling child poverty and deprivation.

"While the child-related measures are well targeted, they result in a relatively small decrease in the child poverty rate as they are accompanied by the withdrawal of temporary measures."

She said: "More investment will be needed to achieve government targets, but there is a very strong economic case for making this investment as the cost of child poverty to the State is estimated at 4% of GDP per annum."