Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I move amendment No. 1:

To delete all words after "That Dáil Éireann" and substitute the following:

"notes: — that the annual rate of consumer price inflation, as measured by the European Union's Harmonised Index of Consumer Prices, has picked up sharply in recent months, reaching a multi-decade high of 5.7 per cent in December;

— that the recent increase in inflation is partly a result of temporary factors related to the pandemic, which are expected to ease gradually over time;

— that the key drivers of inflation in recent months are 'base effects', the imbalance between global demand and supply that has emerged as economies re-opened, and increases in global energy prices;

— that Budget 2022 contained a large range of measures to protect households from the rising cost of living, including a personal income tax package worth €520 million next year and a social welfare package of over €550 million;

— that the Fuel Allowance was increased by €5 per week to compensate lower income households for the additional energy costs they are likely to incur;

— that there were also increases in the allocation of Early Learning and Care and School-Age Childcare to ensure childcare prices do not rise;

— that the Government has also approved an Electricity Costs Emergency Benefit Scheme payment of up to €100 to be made this year to an estimated 2.1 million domestic electricity account holders;

— that in relation to the housing market, the Government's Housing for All strategy outlines the Government's plan to increase affordability and housing supply by targeting the delivery of, on average, 33,000 new homes per annum out to 2030;

— that €4 billion was allocated towards housing in Budget 2022 and this includes €2.6 billion in capital funding, which will be used to deliver 9,200 social homes, the vast bulk of which will be new builds;

— that while the price lenders charge for their loans is a commercial matter for individual lenders, a review of the retail banking market is now underway in the Department of Finance and will consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and consider options to further develop the mortgage market;

— the need for the provision of better healthcare, including via Sláintecare, and that the Government has set aside significant resources in that regard;

— that in terms of wages, the Government has increased the National Minimum Wage each year since 2016, with the aim of making the average minimum wage worker better off;

— that a recent report published by the Economic and Social Research Institute found that this policy has been successful in making the average minimum wage worker better off financially over that period;

— that while inflation expectations currently remain well anchored, second round effects, i.e. higher inflation expectations feeding through to wages, pose a risk to the inflation outlook, with the likelihood increasing the longer this temporary period of high inflation lasts; and

— that Ireland is a small open economy, where wage growth in excess of other economies erodes our competitiveness and puts future jobs and economic growth at risk; recognises that: — the Government has been proactive in limiting the fallout from higher rates of inflation;

— to support households and firms, the Government has made available €48 billion of fiscal support, one of the most significant policy responses of any country in the world;

— this has led to a significant increase in the general Government debt of around 11 per cent of national income; and

— Ireland's public debt is almost a quarter of a trillion euro as a result and among the highest in the developed world on a per capitabasis; and acknowledges that: — the recent rise in inflation is primarily the result of global factors and consequently largely beyond the reach of Government policy, though domestic factors are also at play;

— inflationary pressures are partly the result of temporary factors related to the pandemic, which are expected to fade over time;

— the recent increase in inflation is having a significant impact on the cost of living for Irish citizens;

— while the Government has committed to a range of measures to mitigate the impacts of increases in the cost of living on citizens, it must pursue broadly neutral budgetary policy in order to contain domestic inflationary pressures; and

— it is crucial that we do not have an inflation 'chain reaction' that would damage our international cost competitiveness."

I welcome the opportunity to discuss the recent increase in consumer price inflation and I look forward to a constructive discussion on the issue this morning. In my opening remarks I will outline both the causes of the recent increase and highlight the Government's response. Let me begin by stressing that the Government is acutely aware of the cost of living pressures being faced by Irish households. My remarks will focus on the European measure of inflation, the harmonised index of consumer prices. The rate of inflation is running at 5.7% according to the latest data. I am conscious this is the highest rate since November 2000 and that this is squeezing household disposable incomes while also weighing on the profits of firms and employers. Of course, we should not pretend Ireland is unique in this regard. The rate of inflation has picked up in almost all advanced economies. The latest figures show rates of 7% in the US, 5.4% in the UK and 5% in the euro area. In all countries, these sorts of figures are multi-decade highs. Ireland is no different.

Clearly, the biggest driver of headline inflation at the moment is the sharp increase in energy prices. Demand for oil and other energy products such as natural gas has increased sharply following the reopening of many economies in the second half of last year. At present, the wholesale price of oil is around €77 per barrel, broadly in line with the average pre-pandemic. However, this level is much higher than the abnormal levels that prevailed during the first wave of the pandemic, thus boosting the annual comparison. Around two percentage points of the 5.7% rate recorded in December are due to energy prices. This is what is known as a base effect and is also a feature, for instance, in the sharp annual increase in the cost of airline tickets we have seen. These base effects are expected to drop out of the annual comparison over the course of this year. This is what underpins our assessment that the current very high rate of inflation is temporary and that it will begin to ease from the second quarter of this year. Additionally, the increase in international gas prices is more complex and relates to increased demand from certain parts of the world. This is in part as a result of extreme weather events, lower than expected gas supply and low gas reserves. Unfortunately, Ireland, along with the rest of the EU, is a net importer of gas and, as a result, a price taker on international markets.

More fundamental is the second factor at work, which is the imbalance between global demand and supply that has emerged as economies have reopened. Most advanced economies have recovered strongly from the pandemic and this has boosted demand. However, congestion at ports, unavailable shipping capacity, and the closure of factories in Asia mean supply has recovered more slowly. This mismatch between demand and supply has put upward pressure on prices. These supply chain problems are the reason for the sharp increase in car prices, for instance.

This brings me to the third factor, which is more of a domestic than external issue. This is the rebound in demand in our own economy due to the relaxation of restrictions. Indeed, the rebound seen last year, particularly in the second quarter, was far higher than many expected and is a direct result of successful Government policy to support and protect incomes, jobs and businesses. In fact, household incomes increased by almost 7% in 2020, among the highest in the EU, and grew strongly last year as well. With incomes actually increasing during a time when normal consumption was impossible, household savings surged, rising by €23 billion since the pandemic began.

It is therefore inevitable that the easing of restrictions would lead to a rapid unwinding of pent-up demand and, in doing so, put upward pressure on prices if these savings were to flow into areas in which supply is already constrained. Supply is constrained in many areas, in part due to labour shortages. While the Omicron variant led to only a temporary slowdown, it no doubt worsened the supply constraints. Finally, it also worth mentioning that Brexit is also having an impact on Irish inflation, with higher trade costs due to non-tariff measures being passed on to consumers here.

The Government's primary response to mitigating residential price inflation is to increase supply. New figures from the Department of Housing, Local Government and Heritage show there were more than 30,700 housing units that had commenced construction in 2021. The pipeline is strong. Furthermore, the Housing for All strategy outlines the Government's plan to increase affordability and housing supply by targeting the delivery of, on average, 33,000 new homes per annum out to 2030. Housing for All also aims to provide more than 10,000 social homes and 6,000 affordable homes for purchase or rent per annum, which will help to mitigate affordability challenges for our citizens. Some €4 billion was allocated towards housing in budget 2022, the highest amount ever. In that regard, the level of resources being set aside for core spending is significant, almost €93 billion in 2025 compared with just over €70 billion in 2020. This additional spending will provide for new expenditure measures, including for priorities such as Sláintecare. That goes against the suggestion there is a lack of public sector investment. The opposite is the case.

I will now turn to the issue of wages. In the same report, Ireland was reported to have the second highest minimum wage in the EU. Even when accounting for differences in price levels, the Irish minimum wage was found to be one of the highest across the EU. We must bear in mind, however, that Ireland is a small, outward-looking economy where wage growth in excess of other economies erodes our competitiveness and puts future job and economic growth at risk. It is crucial, therefore, that we do not trigger an inflation chain reaction, a wage-price spiral, that would damage our international cost competitiveness as an open economy that relies on exports.

Let me now turn to the Government's response to the recent increase in consumer price inflation. In formulating budget 2022, the Government was acutely aware of the cost of living pressures that currently confront Irish households. For this reason, it contained a large range of measures to protect households from the rising cost of living. In fact, analysis of budget 2022 carried out by the Department of Finance showed that the gains from the net budgetary package are greatest for those on the lowest incomes, highlighting the progressive nature of the budget package. The budget measures included a personal income tax package worth €520 million for this year alongside a social welfare package of more than €550 million. In terms of specifics, the fuel allowance was increased by €5 per week to compensate lower income households for the additional energy costs they are likely to incur due to an increase in the carbon tax. There were also increases in the allocation of early learning care and school-age childcare to ensure childcare prices do not rise. That is very important for families mentioned by previous speakers.

On foot of the significant increases in energy prices of late, the Government further approved an electricity costs emergency benefit payment of up to €100 to be made this year to an estimated 2.1 million domestic electricity account holders. The benefit to each electricity account holder, including the VAT effect, will be €113.50. The Labour Party has done nothing but call that a gimmick and a wheeze. It is €113.50 and I think people will appreciate that. I reject any notion that it is a gimmick or a wheeze. It is a direct subsidy to every household to deal with the rising costs of electricity.

While the Government is keen to do as much as it can to alleviate the cost of living pressures for households, this needs to be considered in the context of broader budgetary policy and our current financial position.

Overall, in response to the pandemic, the Government has made available €48 billion to shore up household incomes and provide a lifeline for firms while supporting our social, community and cultural life and employment. This is one of the most significant policy responses of any country.

It should be clear that, as well as providing effective policy measures to support the recovery, the Government will do as much as is feasible to alleviate the cost-of-living pressures for households. This support, however, comes at a cost and has led to a significant increase in general Government debt of about 11% of national income. As a result, Ireland's public debt amounts to almost one quarter of €1 trillion, among the highest in the developed world on a per capitabasis.

The rapid rise in consumer prices is certainly unwelcome and the Government is conscious of the impact on the people. We have responded in a proactive manner and in line with policies taken in other jurisdictions. Some of the drivers are outside of our control but our policy response will help mitigate their impact. I am confident the rate of inflation will begin to moderate as this year progresses. I look forward to constructive input from Deputies during the debate.

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