Budget 2006: Impact on Income Distribution and Relative Income Poverty

January 31, 2006

News

31/01/2006

 

Budget 2006: Impact on Income Distribution and Relative Income Poverty

Tim Callan, Kieran Coleman, John Walsh

Special article in Quarterly Economic Commentary, Winter 2006.



A special article by Tim Callan, Kieran Coleman and John Walsh examines the distributive impact of Budget 2006 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:

 

 

  • Budget 2006 will boost the incomes of the poorest 20 per cent of the population by over 6 per cent. Others in the bottom half of the income distribution will see their incomes boosted by about 3 per cent.
  • High income groups will see a gain of about 1 per cent over and above the neutral benchmark.

Budget 2006 is also likely to lead to some reductions in relative income poverty. The most commonly quoted measure is the proportion of persons falling below 60 per cent of median income, one of the key indicators of risk of poverty selected at EU level.

 

 

  • The direct impact of Budget 2006 will be to reduce this “head count” of poverty by about half a percentage point.

The head count measure does not take into account the depth of poverty experienced, as measured by the gap between an individual’s income and the poverty line.

 

 

  • More sophisticated measures which take the depth of poverty into account show that Budget 2006 has a greater impact in reducing poverty.
  • More than a quarter of the total “poverty gap”, between the incomes of poor persons and the poverty line, is filled by Budget 2006.

Overall, Budget 2006 continues the trend seen in the past 5 budgets towards greater proportionate increases in income for those at the bottom of the income scale, and reductions in relative income poverty.



A Press Briefing will be held at the ESRI on Monday January 30th 2006 at 11:00am.