Squeezing the middle

Almost everyone in Ireland is worse off today than they were six years ago, thanks to the economic crisis. Few winners have emerged from the prolonged downturn, which saw unemployment rise rapidly before declining. And many have struggled to adjust to the austerity measures introduced, involving higher taxes and lower public spending. Prof John FitzGerald, in a short commentary for the Economic and Social Research Institute, notes that since 2008 average disposable income per head has fallen by 8 per cent. Those on higher incomes, and therefore better able to bear the burden of fiscal adjustment have, in relative terms, been hit harder in their pockets by the various budgetary measures. But in Ireland – unlike other EU countries, where income inequality has increased in the recession – inequality has narrowed .

Successive governments have protected those most deserving of support, pensioners and welfare recipients, from the full impact of austerity. As Prof FitzGerald points out most of the burden of higher taxation – in part needed to finance welfare payments and to protect those on low incomes - was carried by those on middle incomes, the squeezed middle, who were still at work. But undoubtedly, the biggest casualties of the downturn have been those who lost their jobs as recession took hold. Since 2007 unemployment has trebled, peaking at 14.7 per cent in 2012, and declining as economic recovery has gathered pace. The Central Bank, in its latest quarterly report, is confident that with strong employment growth, unemployment could fall to 10.5 per cent next year.

In recent weeks a succession of Government Ministers – Simon Coveney and Richard Bruton being the latest – have raised public expectations of tax cuts in the October budget. But given the budget requirement to take more money out of the economy, the scope for tax cuts is clearly limited. As yet it is too soon to say whether tax relief can be afforded, and how it might be best applied.