Few crumbs of comfort as incomes take severe hammering

 

There is no guarantee workers will ever recoup cumulative losses in pay, writes LAURA SLATTERY

“SO WHAT’S the damage?” is the first question most workers will have asked after Brian Lenihan slumped back into his seat yesterday and waited for the Opposition to do their worst.

Even in isolation, the doubling of the income tax and health levies, destined to substantially reduce net pay from May 1st, are enough to leave many feeling dispirited. But yesterday’s Supplementary Budget was just the latest assault on the disposable incomes of the nation’s consumers, who will now presumably feel like going into hibernation between now and 2014.

Even before Lenihan finally silenced the baying Dáil deputies and gave everyone the bad news yesterday, a public-sector worker earning a gross salary of €30,000 had already seen their take-home pay reduce by €133 a month as a result of the October budget and the pension levy. At the senior end of the public-sector pay scale, the take-home pay of someone earning €70,000 had already dropped €316 a month this year.

So what is the state of play as a result of yesterday’s package of misery? According to figures compiled for The Irish Times by PricewaterhouseCoopers, the €30,000 public-sector worker is worse off to the tune of €175 a month, having seen 8 per cent of their income disappear, while the €70,000-earning public servant is down €500 a month or a whopping 12 per cent of their income.

In the two examples of private-sector workers shown, we have assumed that their employer chimed into the general cost-slashing mood by inflicting a 5 per cent pay cut earlier this year (although of course many have opted for 10 per cent swipes at salaries or dispensed with their workers’ services altogether).

A private-sector worker who started off with a gross salary of €50,000 had already seen their take-home pay fall by €132.50 before yesterday. After the impact of the Budget, he or she is down €251 a month – or almost 8 per cent.

Private-sector workers earning €90,000 had seen their monthly take-home pay fall by €270 before yesterday. They are now down more than twice that amount in money terms, which translates as an 11.5 per cent smaller pot of money after all taxes, levies and PRSI have been paid.

While lower-income workers may take some comfort in the fact that those on higher incomes are being asked to contribute more in percentage terms to help resolve the economic crisis, their own reductions in take-home pay will be too high to make this anything more than a small comfort.

But it’s not just the Government and employers that have come calling for workers’ hard earned cash: a variety of other organisations have lined up over the past year to ramp up their charges.

For example, much has been made of electricity and gas prices being due to decrease by 10 per cent in May. However, these decreases represent only a partial retreat from the 17 per cent increase in electricity prices and a 20 per cent hike in gas prices imposed in 2008. As a result, the average monthly household electricity bill of €132 has crept up to €155, while the average gas bill went up from €68.50 to €82.

Food prices are more or less the same as they were a year ago, although the period before that was marked by sharp rises in prices for basic foodstuffs such as meat, bread and dairy products.

The increase in bus fares shown above is based on the cost of a Dublin Bus five-day Rambler ticket used by a commuter in the capital, while the rising monthly cost of health insurance is based on premiums for VHI plan B before and after January 1st.

According to Lenihan, the forecasted deflation rate of 4 per cent for 2009 will “mitigate” the effects on real household incomes of falling wages and higher taxes. But this is a thorny issue, as pay rises in recent years failed to keep pace with inflation. Lower-income workers, who spend proportionately more on items that are hard to cut back on such as food and fuel, also tend to suffer more when prices are rising and benefit less when prices are falling.

In the “credit” column, we have petrol prices, which yesterday escaped a further hike in excise duty (although diesel drivers were not so lucky). Typical monthly costs for a driver who uses 200 litres a month have fallen €33.60 thanks to the collapse of crude oil prices, which spiked to $148 a barrel last year but now hover at around $50 a barrel.

Just like the favourable drop in oil movements, the pill with the best chance of sweetening the sour taste of shrinking take-home pay hails from beyond the realm of the troubled Irish economy.

The series of interest rate cuts from the European Central Bank since last October has had a major impact on the disposable incomes of borrowers, with repayments on a typical €250,000, 25-year tracker mortgage dropping €415 a month. But if you have a fixed-rate mortgage, or no mortgage at all, you won’t have this extra cash to compensate you.

It’s worth remembering that, in the years ahead, interest rates in the euro zone could start edging up long before the high taxation legacy of Ireland’s boom-to-bust economy has gone away. In other words, we won’t always be able to rely on lower interest rates to help us make ends meet.