Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012

This paper shows that Budget 2012’s combination of Indirect tax increases and welfare cuts imposed greater percentage losses on those with low incomes - reductions of about 2 to 2½ per cent for those as against losses of about ¾ of a per cent for those on the highest incomes. However, austerity measures over the full period since the October 2008 budget show a very different pattern. Losses imposed by tax and welfare policy changes have been greatest for those on the highest incomes, with a lesser impact on middle incomes and least impact on those with low incomes. Increases in income tax, elimination of the PRSI ceiling and introduction of the Universal Social Charge, coupled with increases in old age pension payments, have contributed to these results. The structure of public sector pay cuts (both directly and via the public sector pension levy) has also imposed greater losses on those with high incomes. Tax, welfare and pay cuts have combined to reduce low incomes by 4 to 5 per cent and top incomes by about 12 per cent. How does Ireland compare with other EU countries in this regard? A recent study of austerity measures in six EU countries (Spain, Greece, Portugal, Estonia and the UK) shows that the distributional pattern for Ireland is among the most progressive. In Greece, pension cuts have featured strongly and the elderly have fared worse than other households. In Ireland and the other countries the opposite has been the case: the elderly have been less affected by tax increases and welfare cuts than other groups, and households with children have fared worse than the average. The average loss for all households in Ireland is about 4 to 5 per cent greater than that for elderly persons. This gap holds at all levels of the income distribution, from those on low incomes to those on the highest incomes.

Note to Editors: 1. "Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012" by Tim Callan, Claire Keane, Michael Savage and John R. Walsh, a Special Article in the Quarterly Economic Commentary Winter 2011/Spring 2012, will be published online on the ESRI website on Friday 24th February. 2.