Distributional Impact of Tax, Welfare and Public Service Pay Policies

December 12, 2013

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Taxation, Welfare and Pensions
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Budget 2014 and Budgets 2009-2014

Today (Thursday 12 December, 2013) a Special Article entitled Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2014 and Budgets 2009-2014, by Tim Callan, Claire Keane, Michael Savage and John R. Walsh (ESRI) is published. This paper analyses the available evidence on the impact of Budget 2014, and of the series of Budgets from October 2008 up to and including October 2013. New analysis takes into account several aspects of policy which could not previously be included – such as the impact of DIRT tax increases, and increases in Capital Gains Tax and the abolition of the social welfare Christmas bonus in 2009. The analysis also covers the main indirect tax increases – carbon tax and VAT. The results show that Budget 2014 had its greatest impact – a reduction of 2 per cent – on low income groups. The lowest impact was on some middle income groups (a loss of 1 to 1¼ per cent) while the top income group lost slightly less than 1¾ per cent. The results for 2014 are quite different to those of the full period from 2009 to 2014. Over that period all income groups experienced losses. For most income groups, the income loss was in a narrow range, between 11 and 12 per cent. The greatest losses were for those in the highest 10 per cent of household income (adjusted for family size). This group saw losses of about 15½ per cent, mainly from tax increases and reductions in public service pay. At the other end of the income scale, policy-induced losses were somewhat higher than average (about 12½ per cent) for those with the lowest incomes. These results do not conform with either a progressive pattern (losses increasing with income) or regressive pattern (losses declining with income). Over a substantial range the pattern is broadly proportional – similar percentage losses for each income group. But this does not extend to whole income distribution. Contrary to some perceptions of a sharper squeeze on middle income groups, the greatest policy-induced losses have been at the top of the income distribution, and the next greatest losses at the bottom.

Notes for Editors:

  • Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2014 and Budgets 2009-2014, by Tim Callan, Claire Keane, Michael Savage and John R. Walsh (ESRI) will be published online on our website on Thursday 12/12/2013.
  • This article will be published as a Special Article in the Quarterly Economic Commentary, Winter 2013 to be published in December.