The Government's five Budgets have largely benefited higher income groups in the population, according to new analysis by the Combat Poverty Agency, writes Maev-Ann Wren
Now that the public finances are deteriorating, the Combat Poverty Agency (CPA) suggests that taxes on business may have to rise to fund welfare payments and public services.
The richest 10 per cent of the population received 25 per cent of the Budget giveaways during the five years of this Government while the poorest 20 per cent received under 5 per cent. The Government's budgets have left relative income poverty virtually unchanged with 20 per cent of households living on incomes below 50 per cent of the average and 9.5 per cent living in "severe poverty" on incomes below 40 per cent of the average, according to the CPA.
It has suggested that the next Government should consider increasing taxes on business to provide adequate welfare payments and quality public services - the last Budget gave business "a major boost" by cutting employers' PRSI and corporate tax rates when companies had already received the benefits of economic growth, it notes.
"The fact that Ireland takes a lower share of national income in taxes compared to other EU member states points to the scope to increase Government revenues. A re-evaluation of business taxes, both corporation and PRSI, would be an obvious starting point."
The CPA has said the most recent Budget which favoured households on low incomes "stands in stark contrast to the previous four Budgets, where middle and higher income groups were the main beneficiaries". The numbers in poverty were even higher before the 2002 pre-election Budget, which contained a relatively generous welfare and child benefit package. Before the Budget 10.3 per cent of households were living on under 40 per cent of average income and 20.7 per cent of households were living on under 50 per cent of average income.
After the Budget some commentators who assessed the record of the Minister for Finance concluded he had not favoured the rich because in proportionate terms he had given greater tax relief to the lower paid. This is not supported by the analysis by CPA, a State agency which has produced an in-depth assessment of the income tax and social welfare changes introduced by Mr McCreevy, based on a representative sample of the population.
Following release of its commentary on the five budgets, the agency has produced additional figures in response to an Irish Times request, which are shown in the accompanying table. While budgetary tax and welfare changes gave cumulative increases in disposable income which ranged from eight to 15 per cent depending on income, these were worth a great deal more to higher income groups. When the agency compared the effect of the Government's budgets to neutral budgets which would have indexed tax and welfare to wages, the richest 10 per cent of the population earning above €513 per week gained €120 while the poorest 10 per cent of the population on incomes below €120 gained under €10.
In terms of cash in people's pockets, the rich emerge as the big winners during Mr McCreevy's time in Finance. This is without even taking into account the additional gains to higher earners from reduced capital taxes, reliefs on investment in property and the special savings scheme. The agency has pointed out that the re-introduction of interest relief on borrowings for rented residential investment generally benefited those on higher incomes while the increase in sales taxes affected low income households most.
Families who are dependent on welfare still receive less than they need to rear children, according to the CPA. At €44 per week, this is "over €4 less than the basic costs of a child". However, commenting on the increases in child benefit in the Budget, the CPA states "this is a much fairer route to supporting children than the advocated alternative of childcare tax relief", which Fine Gael proposed in its childcare package this week. Child benefit "leaves parents decide their preferred means of childcare", the agency noted.
In an analysis of the Government's five budgets, CPA notes "Ireland is amongst the most unequal countries in the EU, with one of the highest rates of relative income poverty".
The pro-welfare stance of the last Budget occurred only after the Government's tax commitments were met. "Changed priorities will be crucial if income inequalities are to be reduced, or at least not exacerbated, in future years. In particular, income redistribution should be an explicit policy goal rather than a residual issue."
The poverty recorded by the CPA persists despite a Government commitment to reducing poverty under the National Anti-Poverty Strategy (NAPS), initiated by the Rainbow Coalition. The NAPS targets so-called "consistent poverty" and aims to reduce the number of poor households, experiencing basic deprivations of such essentials as food, heating and clothing. Measured in this way, poverty has decreased. However, when measured in terms of relative income and consequent social exclusion, poverty has remained unchanged "placing Ireland in the top half of the EU poverty league", according to Mr Jim Walsh, head of research at the CPA.