Middle-income earners carried main tax burden in recession

Income inequality in Ireland has narrowed during the economic crisis due to the protection of welfare rates and middle-income earners shouldering the burden of tax increases, new research indicates.

By contrast, the gap between rich and poor increased significantly elsewhere in the European Union as a result of the economic crisis.

A research paper by professor John FitzGerald of the Economic and Social Research Institute says a massive rise in numbers unemployed up to 2012 would ordinarily have increased inequality. But policies by successive governments to maintain welfare rates, in spite of a massive increase in numbers requiring support, protected those on low incomes.

Income drop

In addition, new figures from the Revenue Commissioners show there was a steeper than anticipated drop in income among the most well-off.

Most taxpayers’ saw their income drop 13 per cent during the crisis, but those earning more than €275,000, for example, saw it fall 28 per cent.

The bulk of the increases in taxation have been felt by those on middle incomes because the pool of high earners shrank significantly, the report states. “The need for increased taxes and for cuts elsewhere in the economy was greatly increased by the decision of successive governments to protect those on low incomes who were dependent on the welfare system,” said Mr FitzGerald.

Various income inequality measures show the gap between rich and poor in Ireland is about average in EU terms.