Austerity was toploaded in earlier budgets

Rich/poor multiple

One feature that should be borne in mind is that average income for the top 20 per cent of households is more than five times the average income of the poorest 20 per cent.

This means that for a budgetary package to impose an equal percentage burden on each group, then for every €50 million taken from the lowest income group, a further €250 million would need to be raised from the top income group.

Property tax is a key driving factor. For those with low incomes the emphasis is strongly on deferrals of property tax liability rather than income-related exemptions or relief. This means that the burden of the tax – deferred or otherwise – tends to be greatest for those on low incomes.

There is an argument that deferral makes most sense for the elderly, when the tax bill can be paid on the sale of the property. In such cases, the burden might be regarded as falling on the inheritors. On the other hand, a deferral option for the elderly in Northern Ireland resulted in a very low take-up, despite a low interest rate – suggesting that the burden of the tax did fall on the elderly person. The balance between deferrals and income-related reliefs varies across countries. The UK and Northern Ireland have much more developed schemes of income-related relief, while the US has more deferrals and fewer income-related reliefs. Choices in this area have a major bearing on the impact of a property tax on those with low incomes – but low-income concessions also affect the rate for those paying property tax.

Austerity comparison

How does Budget 2013 compare with other austerity budgets? The big distinction here is between the budgets for 2009 (October 2008 and April 2009) and those for later years.

The October 2008 budget imposed high and progressive levies on income (later replaced by USC), imposed a progressively structured public service pension levy, and raised welfare rates by 3 per cent. Since then, budgets have been either regressive or broadly proportional. For example, Budget 2010 was clearly regressive, as we indicated at that time.

Much of the overall progressive impact of the six austerity budgets is due to the front-loading of tax increases and effective public sector pay cuts between October 2008 and April 2009.

Budget 2013 contained a number of elements which will be implemented in 2014. The announced restriction on tax relief on pension contributions will be a progressive element. On the other hand, the move from a half-year to a full-year payment of property tax will tend to bear more heavily on low-income groups.

* Tim Callan, Claire Keane, Michael Savage and John Walsh are researchers at the Economic and Social Research Institute