Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2015 and Budgets 2009-2015

The analysis in Distributional Impact of Tax, Welfare and Public Service Pay Policies, by Claire Keane, Tim Callan, and others also examines the combined impact of all budgets from October 2008, on households at different income levels.   The analysis focuses on the impacts of changes in tax, welfare and public sector pay on households’ incomes, net of taxes and the revised water charges. Policy impacts are measured against a “distributionally neutral” benchmark, which indexes welfare and tax parameters in line with expected wage growth of 1.4% in 2015. The results show that Budget 2015 will have its greatest impact – a reduction of 1 per cent in net household income – on the 10 per cent of households with lowest incomes. Smaller losses will be experienced by most middle income households, with small percentage gains for higher income households. The greatest gain will be close to half of one per cent for the top 10 per cent of households. Combined budgetary effects 2008-2015 The paper finds that the combined impact of budgetary policy changes since October 2008 is quite different. Budgets since then have reduced incomes for all income groups, but the percentage losses were greatest for those with the highest and lowest incomes; there were smaller losses for those at middle income levels.

• Households with the highest incomes (the top 10 per cent) 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 (households with incomes in the lowest 10 per cent), budget-related losses were somewhat higher than average, at close to 13 per cent.
• Households with incomes in the middle of the distribution had lower, though still substantial losses from budgetary action (between 10 and 11 per cent).

Analysis at family unit level reveals that the greatest proportionate losses imposed by Budgets 2009 to 2015 were for single unemployed people, while the lowest losses were for pensioners. This reflects the substantial cuts in welfare payment rates for the young unemployed in particular, and the fact that pension payment rates, unlike working age payment rates, were not reduced. Speaking about the findings, Dr. Tim Callan, said "“Families at all income levels and of all types have seen income losses due to budgets over the last 7 years. Single unemployed people without children have been the hardest hit, while retired singles and retired couples have been the least affected”.

Notes for Editors

• This Special Article is part of the Quarterly Economic Commentary (QEC) Winter 2014 .The QEC includes the following Research Notes* and Special Article**
• "Irish Economic Performance 1987-2013: A Growth Accounting Assessment", by David Byrne and Kieran McQuinn, ESRI Research Note No. 2014/4/1 (Published Tuesday, 09 December 2014). View Publication.
• "Two Speed Recovery? Spatial Development in Ireland", by Edgar Morgenroth, ESRI Research Note No. 2014/4/2. (Published Wednesday, 10 December 2014). View Publication.
• "Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2015 and Budgets 2009-2015", by Claire Keane, Tim Callan, Michael Savage, John R. Walsh and Brian Colgan, Special Article in the Quarterly Economic Commentary, Winter 2014.
• The Quarterly  Economic Commentary, Winter 2014, will be published at 00.01am on Wednesday, 17 December 2014.

*Research Notes are short papers on focused research issues.  They are subject to refereeing prior to publication. ** Special Articles are published in the QEC in order to foster high-quality debate on various aspects of the Irish economy and Irish economic policy. They are subject to refereeing prior to publication.  More information on Special Articles.