Impact of Tax and Benefit Changes on Families, 2017-2021

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When assessing the change in people’s incomes following any Budget, it is important that tax changes be included as well as changes to basic social welfare payments.

Following Budget 2021, we assessed the cumulative impact of changes to taxation and welfare over the five Budgets delivered by the last Government (Budgets 2017, 2018, 2019 and 2020) and the first by the current (Budget 2021). As different policy priorities can be articulated for each Budget, it is useful to bring together the cumulative effect of policy changes on various household types.

The households we examine are spread across all areas of society and capture those with a job, families with children, those unemployed and pensioner households. Within those households that have income from a job, we include workers on the minimum wage, on the living wage, workers on average earnings and multiples of this benchmark, and families with incomes ranging from €25,000 to €200,000.

In the case of working households, the analysis is focused on PAYE earners only and therefore does not capture the changes in recent Budgets that were targeted at the self-employed.

At the outset it is important to stress that our analysis does not take account of other budgetary changes, most particularly to indirect taxes (VAT and excises), other charges (such as prescription charges) and property taxes. Similarly, it does not capture the impact of changes to the provision of public services or the many emergency measures that have been introduced to respond to the Covid-19 emergency. As the impact of these measures differs between households it is impossible to quantify precise household impacts and include them here.

Chart 1: Cumulative Impact on Households with Jobs, 2017-2021

Source: Social Justice Ireland Income Distribution Model.

Chart 2: Cumulative Impact on Welfare Dependent Households, 2017-2021

Source: Social Justice Ireland Income Distribution Model.

Over the years examined (2017-2021) all household types record an increase in disposable income. Among households with jobs (see Chart 1), the gains experienced range from €4.61 per week (for single workers on €25,000) to over eight times as much, €37.97 per week, for a couple with 2 earners on €200,000. Overall, across these households the main gains have flowed to those on the highest incomes.

Among households dependent on welfare, the gains have ranged from €16.19 per week (for single unemployed individuals) to €43.55 per week (for unemployed couples with two children) - see Chart 2. The gains experienced by welfare dependent households explain much of the reasons why the levels of income inequality and poverty have fallen in recent years. Social Justice Ireland has consistently argued for the prioritisation of low income welfare dependent families in Budgetary policy and welcome these outcomes. However, we are concerned that recent Budgets have shifted away from this approach and regrettably expect that much of this recent progress will be reversed.

Impact of Budget 2021

In our calculations, we have not included any changes to other welfare allowances and secondary benefits as these payments do not flow to all households. Similarly, we have not included changes to other taxes (including indirect taxes and property taxes) as these are also experienced differently by different household types. Wage increases, including those for the statutory minimum wage, are also excluded as the nature and value of these changes will differ across earners.

Chart 3: Impact of Income Tax and Welfare Payment Changes from Budget 2021

Source: Social Justice Ireland (2020:6).

Notes: * Except in case of the unemployed where there is no earner. Unemployed aged 26 years and over. All other earners have PAYE income. Couple with 2 earners are assumed to have a 65%/35% income division.

Chart 3 demonstrates that there is little change arising from Budget 2021 for the various household groupings we track annually. The Budget did not deliver any welfare or income taxation measures of significance, meaning that almost all household did not benefit from any additional resources as a result of its actions. This includes no increase in the weekly rate of jobseekers benefit. The lack of any welfare increases in Budget 2021 was regrettable. Over 2021, as wages rise for some, the growing numbers dependent on welfare will slip further behind. Inevitably, the recent progress on poverty and inequality will be somewhat reversed.