The Minister for Public Expenditure said he "accepts the risk" that the proposed cost-of-living package for this year's budget may fuel inflation.
Ahead of Budget 2024, the Central Bank, the ESRI and Fiscal Advisory Council have warned that Government's spending plans risk adding to inflation.
The Government has set aside a €6.4 billion spending package for Budget 2024 – however, that could rise to around €11.4bn if once-off measures like energy rebates and financial supports for businesses are taken into account.
Speaking to Newstalk Breakfast, Minister Paschal Donohoe said he is "well aware" of the risks of the proposed packages.
"I completely understand that we need to avoid global and European inflation becoming embedded into Irish inflation," he said.
"The reason we're trying to avoid that happening – which we have so far – is if that happens, even if inflation falls elsewhere in the world, we run the risk of that not happening in Ireland which means we become a lot poorer for a lot longer.
"So, of course, I accept that risk."
Minister Donohoe said he still has a "duty" to "try to respond back to the cost of living pressures".
"Even though inflation is still slowing down, prices are still going up and there is a need for the Government to try to help where we can with that," he said.
Surging corporation tax receipts mean the State is expected to record a budget surplus of €10 billion this year and €16 billion in 2024.
"We're running surpluses, which are now very rare, even within Europe at the moment," Minister Donohoe said.
'Not planning to spend'
The Government has previously cautioned against spending the surplus money all at once on the grounds that corporation tax revenues could drop as quickly as they have risen.
Instead, they plan on spending the cash on the creation of a State Welfare Fund that could be modelled on the one set by Norway in the 1990s.
"This is money that we are not planning to spend," Minister Donohoe said.
"If I was on your show here this morning, and I was saying there is €10 billion that we've just collected in corporate tax receipts – which we believe we might not have forever – but we're going to spend all of it, I think that genuinely would be the wrong thing to do.
"We were not planning to do that, so, of course, I accept there are risks."
EU vs Ireland
Minister Donohoe denied that Ireland's policy for dealing with inflation – to ease the consequences of it – was at odds with the EU approach to drive it down.
"I respectfully make the case though, that that hasn't been the case so far," he said.
"We have grown the amount of money that we are not spending, recognising that if we spent that money then we would be going against the grain of what's happening with interest rates, which in turn are trying to get inflation down.
"If you are looking at the rate of growth of public spending, particularly since our inflationary difficulties became so intense, it has been below the pace at which prices have gone up."