Budget measures to result in small income losses - ESRI

Taoiseach Micheál Martin has taken issue with an analysis conducted by the Economic and Social and Research Institute (ESRI), which says the measures announced in Budget 2026 will result in small income losses next year.

In its post-Budget briefing, the ESRI said the losses will average 2% of household disposable income. It said the withdrawal of temporary cost-of-living measures is "responsible for much of this effect".

Speaking this afternoon in Co Cork, Mr Martin said modelling conducted by the Department of Finance said those in the two lowest income brackets would gain from the Budget by between 4% and 5%.

Asked for his response to the ESRI analysis, Mr Martin told RTÉ News: "You can't look at the Budget in the narrow sense of just that [household incomes].

"All the people in this country want better water facilities, better waste water treatment; they want better roads; they want rail. They want us to improve the public infrastructure."

He said the Government was investing in enterprise, research and development and in protecting jobs in the Budget because, if it did not, people would be hit harder.

"You have to look at it in a broader way," Mr Martin said, referring to Tuesday's Budget.

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," it said.

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."