The Government is to hold firm on its commitment to end cost-of-living measures in the Budget, despite fresh warnings that the move will push households into poverty.

Influential think-tank the Economic and Social Research Institute (ESRI) will today caution that removing one-off measures such as energy credits is likely to ‘lead to knock-on effects on poverty and inequality’.

But Public Expenditure Minister Jack Chambers will himself tell Cabinet today that ‘fiscal prudence’ is essential to safeguarding Ireland from global economic shocks, as the threat of a transatlantic trade war grows.

Seriously ill children forced to travel abroad for treatment due to staff shortages in the HSE

US president Donald Trump has threatened 30% tariffs on Europe on August 1 – a move the Government fears would effectively end all US-EU trade.

Mr Chambers will today advise demands, with spending on everyday services increasing by 6.5% since last year – hardening the Government’s stance on the cost-of-living measures, despite the ESRI raising the alarm. In documents seen by Extra.ie, ESRI researchers will today tell the Oireachtas Budgetary Oversight Committee: ‘While temporary measures have been successful in helping households deal with rising prices, their inevitable phasing out will cause affordability issues.

‘This is likely to lead to knock-on effects on poverty and inequality, if headline welfare payments fail to keep pace with income growth.’ The ESRI will warn that while inflation has generally been slowing down, prices remain at an ‘elevated level’.

However, senior Government sources confirmed last night that it remains committed to ending one-off payments. The Government has come under increasing pressure in recent weeks to reverse course on plans to remove a €1,000 reduction in college fees and to do more to tackle the soaring cost of groceries.

The rate of food inflation since June 2024 has been more than double that of the general rise in prices across the economy, at 4.6% compared to 1.8%, according to the CSO.

Milk, cheese, butter and beef have also risen significantly in price over the past year – exerting significant pressure on families and the elderly. But as economic storm clouds gather, and with the ESRI to revise its growth estimates downwards by 0.7%, the Government insists it will stand firm.

One senior figure said: ‘Yes [they are being ruled out]. We’ve been very clear I think. We need to switch to more permanent measures which provide long-term solutions rather than a short-term fix.’

Taoiseach Micheál Martin has said that the October Budget will focus on child poverty, among other measures. Tánaiste Simon Harris, who has opposed the removal of college fee reductions, has said that he wants an ‘expansionary’ budget, in a sign of tensions over the October package. He has also pushed for pensions to increase at a higher level than the dole payment – a move opposed by Fianna Fáil.

Both Mr Chambers and Finance Minister Paschal Donohoe have repeatedly warned of strong economic headwinds facing the Irish economy as a result of Mr Trump’s desire to impose tariffs on the EU. The ESRI will today echo warnings from the Central Bank and the Irish Fiscal Advisory Council, that the Government is running a pro-cyclical economic policy.

This means that it is pumping money into the economy at a time when it does not need to. It will say: ‘Recent Government surpluses would have been substantial deficits without windfall corporation tax revenues that are concentrated in a small number of taxpayers.

‘Almost by definition, the windfall revenues could evaporate quickly in response to factors such as international legislative changes or corporate events. ‘History – in particular the economic collapse – provides a stark reminder that a vulnerability in the tax base can become a major problem if something arises to test the vulnerability.’

The ESRI will say that more funds that are currently budgeted for should be put into Ireland’s two savings vehicles – the Strategic Investment Fund and the National Reserve Fund.

‘While the establishment of the investment funds is extremely welcome, increasing the level of throughput from windfall payments to the funds would be advisable’ the ESRI will say.

‘A second reason for voicing concern on the public finances relates to the fiscal stance. As pointed out over many years by the ESRI and others such as IFAC and the Central Bank, running underlying deficits is generally inadvisable when the economy is performing so well.

‘A fundamental principle of fiscal management is that the fiscal stance should be countercyclical. ‘Ireland’s fiscal policy looks pro-cyclical right now, in the sense that expenditure is increasing during a period of growth for the domestic economy.

‘While some degree of spending increases could be justified if targeted towards addressing infrastructure bottlenecks, broad based spending increases create risks such as overheating, as well as the longer term risk that it will be necessary to continue with a pro-cyclical fiscal stance in any downturn.’

Economic growth will also be downgraded by the ESRI. The body will tell the committee: ‘We have revised our growth forecast downwards due to international developments’.

‘The Irish economy is vulnerable to any deterioration in global trading conditions arising from either the imposition of trade barriers or prevailing uncertainty around trade policy and geopolitical developments.

Our forecast for growth in Modified Domestic Demand was 3% in our Spring Quarterly Economic Commentary – this is now 2.3%. ‘For 2026, we have adopted a technical assumption that tariffs settle at moderate levels, in line with the IMF forecasts; this would lead to a possible growth rate of MDD of 2.8%.’

Mr Chambers will today update Cabinet on State spending for the first half of the year. The memo shows current expenditure is up 6.5% compared with the first six months of 2024, while capital expenditure is up 22.5% in the same period.

Minster Chambers will tell his Cabinet colleagues that the significant increase in capital spending underscores Government investment in infrastructure, including housing and education.

He will also tell ministers capital investment will be scaled up significantly in the years ahead as part of the revised National Development Plan he will publish next week.

It is understood that Budget negotiations with some departments will go down to the wire, with some requests from ministers ‘very ambitious’.

Mr Chambers will remind ministers of the need to manage allocations in a balanced and sustainable way that provides better public services, improves living standards and enhances economic competitiveness amidst a background of threatened trade tariffs and heightened economic uncertainty.