ESRI says budgets benefited the richest

The richest one-third of families benefited five times more than the poorest one-third in the last 14 budgets, according to the latest analysis from the Economic and Social Research Institute.

In a paper to be given at a pre-Budget conference today, the ESRI predicts that the Minister for Finance, Mr McCreevy, is likely to target a deficit in his upcoming Budget in December.

This will allow for a combination of tax cuts and spending increases of £900 million (€1,143 million).

According to ESRI research professor Mr Tim Callan, budget packages since 1987 have boosted the income of the richest one-third of families by about 18 per cent and the poorest one-third by less than 4 per cent.

The contrast between the top and bottom one-fifths is even more stark, with a decline of 1.2 per cent for the poorest one-fifth of families compared with an 18.9 per cent increase for the top 20 per cent.

Since 1987 over £4 billion more than what was needed to keep pace with wage growth has been available for tax cuts and welfare increases. Over 90 per cent of this has been used for income tax cuts, with child benefit making up the remainder.

Welfare payments have just kept pace with growth in gross earnings. Take-home pay has been boosted by tax cuts.

According to Prof Callan, social welfare's share should increase to 50 per cent. Child benefit will be targeted if the Government keeps the promise given in the last Budget that child benefit will by next year increase to £117.50 for first and second children, and to £146 for third and subsequent children.

Current rates are £57.50 for first and second children and £86 for third and subsequent children.

Prof Callan will warn that a continuation of past policy would allow relative income poverty to rise.

The ESRI is recommending a £900 million combination of tax cuts and spending increases in the Budget.

This would mean fully indexing tax and welfare rates.

"Budget 2002 need not be too tight, but tighter than last year," one of the authors, Mr Danny McCoy, said.

He said one of the main dangers would be a sharp retrenchment in spending on capital infrastructure. "This would be particularly short-sighted given that this is likely to be a short-term drop below the economy's trend growth rate."

The paper also predicts that this year's Exchequer surplus will amount to £1 billion, about £1.4 billion lower than last year. But the Government will have to target a deficit for next year.

This is a "stark change" from last year but should not be of too much concern, given the good medium-term growth prospects for the economy, according to the report's authors.

The general Government surplus - the broader measure that is used by the EU - will amount to £2.2 billion - about £2 billion lower than the European Commission had in mind when it criticised Irish economic policies earlier this year.

According to Dr Patrick Honohon of the World Bank, who is presenting a paper on European and international constraints on Irish fiscal policy, Brussels is unlikely to be a major influence on budget decisions.