Irish austerity budgets shown to be progressive - except for the latest

Fri, Feb 24, 2012, 00:00

HIGHER EARNERS have taken the brunt of the hit in take-home pay as a result of the harsh budgets of the past four years, a new report from the ESRI states. However, those on lowest incomes took the greatest hit in the most recent budget.

A special article authored by Tim Callan and Claire Keane and published in the Quarterly Economic Commentary from the Economic and Social Research Institute (ESRI), finds that the austerity budgets of the past four years have been progressive. This means the percentage of tax paid by higher earners is more than that paid by those on lower incomes.

In an analysis of 2008-2012, the top 10 per cent of earners suffered an almost 13 per cent decline in their incomes due to the budgetary measures.

Those on lowest incomes, on the other hand, saw a decline in their incomes of about 4-5 per cent. Those in the middle saw a decline of about 8 per cent.

When looked at by family type and whether or not a person is employed, families with one or more earners and children were shown to have been affected most by the harsh budgets of the past four years, losing about 11-12 per cent of their income. This is due to the cut in child benefit.

The statistics also show that a couple with one earner saw a lower decline in their income, of 8.7 per cent, while pensioners’ income held up best, falling 1.6-3.6 per cent.

Of those on welfare payments, the single unemployed and one-parent families were found to have experienced some of the greatest losses, with their income declining by 11 per cent and 6 per cent respectively.

The authors quote a study of six countries, including Spain, Greece and Portugal, which found that the impact of austerity budgets in Ireland was among the most progressive. However, it did find that the lowest income losses were not incurred by those on the lowest incomes – as should be the case in a progressive regime – but rather those in the 20-40 per cent range. According to the report, this is because of the “special treatment afforded to the elderly”, which included a rise in the State pension in 2009 and no subsequent drop.

When the most recent budget, in December 2012, is looked at in isolation, it demonstrates that taxes have become more regressive. It introduced a number of indirect tax measures and as a result, the research shows that those on the lowest incomes took the greatest hit. Indeed for the poorest 40 per cent of households, incomes fell by about 2-2.5 per cent as a result of the measures.

Those in the middle saw their incomes fall by 1 per cent, while the top 30 per cent of earners only saw a 0.7 per cent reduction in their take-home pay.

“These results reflect the fact that increases in indirect taxes are regressive, and that cuts in welfare have a greater impact on low-income groups,” notes the report.

Regarding public sector cuts over 2009-2012, the measures have again shown to be progressive, making little difference to low-income households but having the greatest impact on higher earners. For middle-income public sector earners, the measures have led to a pay reduction of about 7 per cent.