It said the “untargeted” cost-of-living measures, such as the energy credits and double Child Benefit payments, would have been enough to pay for a second tier of Child Benefit instead. This could have lifted 40,000 children out of poverty.
Dr Claire Keane, an associate research professor at ESRI, said that while inflation has slowed, price levels remain elevated, which is putting pressure on low-income households.
“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,” she said.
In Tuesday’s budget, Finance Minister Jack Chambers reduced the energy credit from last year’s €450 to €250, which the ESRI analysis said will disproportionately affect households on fixed incomes, such as pensioners, for whom this credit represents a large proportion of income.
Pensioners fared worst in the giveaway budget, the analysis found, because neither the Fuel Allowance nor the Living Alone Allowance were increased annually, which means a net loss when inflation is taken into account.
Finance Minister Jack Chambers and Public Expenditure Minister Paschal Donohoe on Budget day. Photo: Reuters
A €300 payment on the Fuel Allowance in November is a once-off, as is a €200 payment for those on the Living Alone Allowance.
Middle-income households, the so-called squeezed middle, also enjoyed smaller gains than those at different income levels, the ESRI said.
“Most elements of the tax-benefit system will be increased broadly in line with forecast income growth in 2025. However, some elements of the system, such as Child Benefit, the Living Alone Allowance and Fuel Allowance have been frozen in nominal terms,” the analysis added.
“These, together with the PRSI increase planned for 2025, will lead to small income losses for some households, compared to a budget indexed to forecast income growth.”
Wage growth is estimated at 4.2pc next year, and the tax changes announced in the budget will only keep pace with those increases. Social welfare recipients will have a net gain of about 1pc.
Noting the importance of temporary cost-of-living measures to many households, ESRI said that without them, the at-risk-of-poverty (AROP) rate of retired people would be five percentage points higher than it estimated it will be for 2025.
“Similarly, without temporary cost-of-living measures, the AROP rate of disabled households would be three percentage points higher,” it said.
Taking the last five budgets together, and taking into account increases in incomes over that time, ESRI found that households are slightly worse off, by around 0.7pc of disposable income, in that period.
Budget 2025: What’s in it for me?
“However, accounting for the value of initiatives such as free school books and meals rolled out over that period, average losses are lower, at 0.3pc of disposable income,” it said.
“This illustrates that, although they do not form part of the traditional tax-benefit system, non-cash benefits such as school books and meals can have a measurable impact on household incomes.”
Kieran McQuinn, a research professor at ESRI, said: “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.”