John FitzGerald, a respected economist and former head of the Economic and Social Research Institute, has recently made waves by calling on the Irish government to stop providing cost of living supports to families who don’t need them. In a new report, FitzGerald argues that these supports, such as child benefit payments and tax credits, are costing the state hundreds of millions of euros per year but are not effectively targeted at those who need them the most. He suggests that redirecting this funding to support low-income households could lead to meaningful reductions in poverty and inequality. In this article, we delve into FitzGerald’s findings and explore the potential implications of his recommendations for Irish families and the wider economy.
Before the pandemic, household savings in Ireland were similar to those in the rest of the EU, averaging around 10% of income. However, the Covid shock had a significant impact, with lockdowns limiting spending opportunities and fear contributing to increased caution. Additionally, government support in the form of income transfers further increased savings, leading to a 7% increase in average EU household savings in 2020, with Ireland’s savings rate more than doubling to 25%.
While savings gradually fell back as the pandemic waned in most EU countries, Ireland’s savings rate remained high at around 20% in 2022. It is not clear why Irish households are continuing to save so heavily, but it is likely that richer households are the ones saving, as inflation and energy price increases have less impact on them.
Most of the excess savings have gone into bank deposits, which have risen by almost €40 billion, but weak demand for credit means that banks have been unable to put these deposits to use. Instead, they have deposited their excess funds with the Central Bank, which has increased its net international investment position by around €50 billion since 2019.
The Irish economy is growing faster than the rest of the EU, so the European Central Bank’s monetary policy, designed for the euro zone as a whole, may not be enough to fully control inflation in Ireland. Therefore, the Irish government needs to use fiscal policy to keep inflationary pressures under control. This could involve unwinding exceptional support for households, especially for the better-off, and offsetting this by higher taxes on these households.
In conclusion, the issue of cost of living supports for better off families is a contentious one, but John FitzGerald has provided a compelling argument in favor of ending these benefits. By redirecting resources towards those who are genuinely struggling to make ends meet, we can ensure that the most vulnerable members of society receive the support they need to thrive. While this may be a difficult pill to swallow for those who have grown accustomed to these benefits, ultimately it is in the best interest of our entire community to allocate resources in a more equitable and effective manner. Let us hope that policymakers take heed of FitzGerald’s advice and work towards creating a more just and sustainable future for all.
