Austerity budgets hit highest paid hardest

The austerity budgets of the 2009 to 2014 period hit high-income households hardest, a report from the Economic and Social Research Institute (ESRI) has found.

The report, Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2014 and Budgets 2009-2014, published today, shows that low-income housesholds will suffer most as a result of Budget 2014.

Low-income groups suffered a loss of 2 per cent as a result of the package unveiled in October by Minister for Finance Michael Noonan. Middle-income earners will lose about 1-1.25 per cent while the highest paid will lose more than 1.75 per cent.

However, it also shows that between 2009 and 2014, the greatest losses were those suffered by the highest 10 per cent of household income.

“This group saw losses of about 15.5 per cent, mainly from tax increases and reductions in public service pay,” a statement issued by the institute said. It added that policy-induced losses were a little higher than average, about 12.5 per cent, for those with the lowest incomes.

Overall, the ESRI said that during the 2009 to 2014 period, all income groups experienced losses. For most, this was 11-12 per cent.

The results do not conform with a progressive pattern, where the budget losses would increase with income, or a regressive one, where they decline with income, it said. Instead, it claimed that over a substantial range, the pattern was broadly proportional, with similar percentage losses for each income group. “But this does not extend to whole income distribution,” it said.

“Contrary to some perceptions of a sharper squeeze on middle income groups, the greatest policy-induced losses have been at the top of the income distribution, and the next greatest losses at the bottom.”

The paper analyses the available evidence of the impact of Budget 2014, and of the series of budgets from October 2008 as a direct response to the financial crisis, up to this year.

The ESRI will publish the article, by Tim Callan, Claire Keane, Michael Savage and John R Walsh, on its website today and it will be included in this month's Quarterly Economic Commentary, Winter 2013.