Unemployed worst affected by budgets, says ESRI report

Single unemployed people without children have been hardest hit by budget cuts since the crash, and retired people have lost the least, according to new research. Those on the lowest incomes were found to have lost the greatest amount of household income as a result of Budget 2015.

While budgets since 2008 have reduced the incomes of all income groups, the Economic and Social Research Institute (ESRI) says the percentage losses were greatest for people with the highest and lowest incomes.

In

Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2015 and Budgets 2009-2015

, an analysis of the impact of sustained fiscal retrenchment, the ESRI found that:

the richest 10 per cent of households lost about 15½ per cent, mainly from tax increases and public service pay cuts;

budget-related losses incurred by households with incomes in the poorest 10 per cent were “higher than average”, at close to 13 per cent;

middle-income households had “lower, though still substantial, losses” due to budgets, from 10 to 11 per cent.

Greatest and lowest losses

A family unit assessment showed that the greatest proportionate budgetary losses were for single unemployed people and the lowest losses were for pensioners.

“This reflects the substantial cuts in welfare payment rates for the young unemployed in particular, and the fact that pension payment rates, unlike working age payment rates, were not reduced,” said the ESRI team.

The research was carried out by Tim Callan, Claire Keane, Michael Savage, John R Walsh and Brian Colgan.

“Families at all income levels and of all types have seen income losses due to budgets over the past seven years,” said Dr Callan.

In an assessment of Budget 2015, the thrust of which was previously carried in The Irish Times, the ESRI team said households with the top 10 per cent of incomes will gain most from the package.

“The results show that Budget 2015 will have its greatest impact – a reduction of 1 per cent in net household income – on the 10 per cent of households with lowest incomes,” the ESRI said. “Smaller losses will be experienced by most middle-income households, with small percentage gains for higher-income households.”

This analysis takes account of the recent revision to the water charge scheme, in which metered charging was suspended in favour of lower flat rates.

Neutral impact

“The overall impact on household incomes of Budget 2015 and water charges is close to neutral, increasing average income by less than 0.1 per cent,” said the ESRI. “ The top [10 per cent of households] gains the most, with an average gain of 0.6 per cent. This pattern of losses in the bottom half of the income distribution, declining as income rises, and gains in the upper reaches, rising with income, can clearly be described as regressive.”

The ESRI said the introduction of a new, higher universal social charge, to counterbalance the cut in the top tax rate for people on very high incomes, gave rise to a “less unequal outcome” than a simple top-rate tax cut.

“A simple top-rate tax cut would have cost in the region of €230 million in a full year. In effect, the higher USC rate claws back close to €100 million of this, by capping the gains of those on the highest incomes at the same level as those on €70,000 per year. Nevertheless, there are gains for all top-rate taxpayers.”