Fair budget? The numbers don't tell the full story

Sat, Dec 8, 2012, 00:00

Q Is budget 2013 equitable?The Government has made several bold claims concerning progressive and equitable changes brought about by this budget.

It states that the income tax system in Ireland is “one of the most progressive” in the Organisation for Economic Co-operation and Development and that the fiscal changes between 2008 and 2012 have been “progressive in nature”.

Official figures appear to support the claim: those who earn the most have borne the greatest share of tax increases over the past five years.

For example, the net income for a private sector worker on €25,000 has fallen by 8 per cent between 2008 and 2012; the net income for a private sector worker on €200,000 has fallen by 14 per cent.

But the figures don’t tell the full story.

They do not, for example, factor in all cuts to services (such as health, social care or education) that affect the poor disproportionately.

Overall, however, most analysts accept that high earners have been hit for the greatest loss in proportional net income since the austerity budgets began in 2008.

It is much harder, however, to claim that the 2013 budget is equitable or progressive.

The abolition of the weekly PRSI threshold for all workers earning more than €352 per week (or €18,304 per annum) hits hardest those workers who have the lowest incomes.

For all workers earning above €352 per week the reduction in take-home income is the same: just over €5 per week.

The relative impact is greatest for those earning least. As Social Justice Ireland notes, a single worker on €20,000 faces a percentage reduction that is five times greater than an earner on €100,000.

On Thursday, the Economic and Social Research Institute released an initial report examining the impact of Budget 2013. The figures indicate that income reductions are higher for lowincome families, and lower for the better-off.

The cuts represent a drop of just over 1 per cent for low-income groups and a little over half of 1 per cent for the top earners.

This model – as its authors concede – is incomplete. It does not include capital gains tax, Dirt and the universal social charge for older people. This is likely to make the impact more progressive, according to the ESRI.

However, it also excludes cuts to the jobseeker’s benefit, reductions in the household benefit package and the respite care grant, cuts that will hit lower-income groups harder.

Some of these changes will come into force next year and others will not be fully felt until 2014.

As of now, initial figures show the less well-off are shouldering a heavier burden, but the full picture will become clear only over the coming months.