"Budget 2005: Impact on Income Distribution and Relative Income Poverty", Special Article in the Quarterly Economic Commentary, Winter 2004.

December 21, 2004

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21/12/2004

 

"Budget 2005: Impact on Income Distribution and Relative Income Poverty", Special Article in the Quarterly Economic Commentary, Winter 2004.

By Tim Callan, John Walsh & Kieran Coleman (ESRI)

Article appearing in the ESRI Quarterly Economic Commentary, Winter 2004.



This article examines the distributive impact of Budget 2005 against the background of a “neutral” budget, which would see incomes rise equally for different groups. Analysis using the ESRI tax-benefit model finds that:

 

 

  • The greatest gains from Budget 2005 will go to the lowest income groups, who will see their incomes rise by between 2 and 4 per cent over and above what could be expected from a “neutral” budget. This arises because increases in most welfare payment rates are greater than expected pay growth.
  • High-income groups will see little change in their average incomes as a result of the budget.
  • Budget 2005 is also likely to lead to a small reduction in relative income poverty.
  • For example, it is expected that Budget 2005 will lead to a reduction of about half a percentage point in the proportion of individuals with incomes less than half of average income.
  • Overall, Budget 2005 can be seen as similar to those in 2002 and 2004. The major contrast is not between Budget 2005 and recent budgets, but between the Budgets of 2001 to 2005 and those of the 1990s, in which typically the greatest gains went to those at the top of the income distribution.