The International Monetary Fund has warned the Government that budget measures to support households in the aftermath of the inflation shock caused by the US-Israeli war on Iran should be temporary and targeted at the most vulnerable. In its latest report on the Irish economy, published on Monday, the Washington-based agency said “broad-based personal income-tax reliefs and exemptions” could be reduced to help buttress the Irish tax base, which remains heavily reliant on volatile corporation tax receipts from a handful of multinational companies. Broadening the tax base could also mean “enhancing” the take from the local property tax and cutting some of the “many reduced rates” of VAT in Ireland, IMF assistant director Yan Sun told reporters.Sun, who leads the fund’s Irish mission, said “there’s a large VAT gap” in the Republic, similar to the gap that exists in the personal income tax regime, in which close to a third of the population pays no income tax.The Coalition plans to slash the VAT rate for the hospitality sector from 13.5 per cent to 9 per cent from July, at an estimated cost to the State of €232 million in 2026 and €681 million in 2027. Asked for a view on the appropriateness of the policy, which was announced in last October’s budget, Sun said the IMF would like there to be a “limited number” of reduced VAT rates. “Once you have many items that are subject to reduced rates, that reduces the efficiency of the VAT system,” she said.The agency also said the Coalition needed to look at “temporary” and “targeted” measures to address any impact of rising energy costs on Irish households, instead of “broad-based ones such as tax cuts, subsidies and price controls”.Minister for Finance Simon Harris said last week that “there will be support for people” in Budget 2027. However, the Tánaiste said he considered “cutting people’s income tax and allowing people to keep more of their own money” as “an important thing to do when people are under cost-of-living pressures”.On Monday, Sun told reporters the social welfare system was “definitely” the best way to reach vulnerable households, rather than through “broad-based” supports such as energy credits.Overall, the IMF said the Irish economy was in a strong position, but that in 2026 the domestic economy would grow at about half the rate at which it expanded last year. Separately on Saturday, the IMF said European Union countries would face large bills for defence, energy and pensions in the next 15 years, suggesting a mix of reforms, consolidation and joint borrowing as a way to manage that.“If left unchecked, public debt will be on an unsustainable path. Under unchanged policy, debt of the average European country would reach ​130 per cent of GDP by 2040 – roughly doubling from today,” the IMF said in a paper used as a basis for EU finance ⁠ministers’ discussions at an informal meeting in Nicosia.The paper said that to prevent such a scenario, ‌EU ‌countries must ​improve incentives for citizens to move around the 27-nation bloc to find work and for companies to hire them.The EU should also integrate its ⁠energy markets, make it easier for citizens’ ​savings to flow across the bloc into profitable investments ​and unify laws that now often differ from country to country. Pension reforms and a higher retirement age would ‌also help, it said. – Additional reporting: Reuters