Was Budget 2016 progressive or regressive?

From Coalition’s subjective perspective of the Coalition, the budget was politically balanced

Minister for Finance Michael Noonan  and Minister for Public Expenditure  Brendan Howlin  at a pre-budget photocall last week: in percentage terms, a person earning €70,000 will be 1.9 per cent better off, whereas a person earning €20,000 a year will be about 1.1 per cent better off. Photograph: Dara Mac Dónaill

Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin at a pre-budget photocall last week: in percentage terms, a person earning €70,000 will be 1.9 per cent better off, whereas a person earning €20,000 a year will be about 1.1 per cent better off. Photograph: Dara Mac Dónaill

 

“It’s the rich wot gets the glory, it’s the poor wot gets the blame,” goes the old saying.

One of the criticisms levelled at successive Coalition budgets since 2011 is that they have not been sufficiently progressive. In other words, they do not favour lower-income earners over higher-income earners.

Savage as they were, the last few Fianna Fáil-Green budgets were progressive in that the better off saw a lot of convenient loopholes closed and the universal social charge (USC) brought a lot of previously non-taxable income into the net.

This charge of the regressive nature of budgets – and Social Justice Ireland (SJI) has been the most persistent critic in this regard – has been a sore point with the Government.

Balancing measures

This year, for example, the rate of USC for earnings between about €18,600 and €70,000 will fall from 7 per cent to 1.5 per cent, with a smaller decrease (0.5 per cent) to the two lower rates for earnings below €18,600.

The 8 per cent rate for those earnings above €70,000 remains the same. That essentially means people with very large salaries will derive the same benefit (and no more) than those earning €70,000, which is just under €900 all told.

The argument that has been made by the Opposition and by groups such as SJI is that the Government parties, Fine Gael in particular, have a soft spot for those earning tidy sums, say more than €50,000.

It argues in real terms, higher earners have done much better than those on low incomes. A person earning €20,000 a year will gain €493 while a person on €70,000 will earn more. In percentage terms, a person earning €70,000 is 1.9 per cent better off, whereas a person earning €20,000 a year is about 1.1 per cent better off.

High earners are a key group for Fine Gael. The party argues that this group has borne the bulk of tax increases. Also, because it pays more tax than low earners, it follows it gets more money back on a proportionate percentage decrease that is the same for everybody.

The Government also points to other measures: an increase to €9.15 in the minimum wage; the Christmas bonus, restoration of the respite care grant; an increase in the old-age pension.

Capital plan

National Asset Management Agency

There are choices. Undoubtedly some were political – no politician can be blinkered enough to draft a budget that is an electoral kamikaze. Objectively it could have been more progressive. From the subjective perspective of the Coalition it was politically balanced.