How Bud­get will leave us poorer

ESRI con­firms what the Mail re­vealed – in­fla­tion will de­vour Dono­hoe’s so-called tax ‘give­aways’

Irish Daily Mail - - News - By Bill Tyson news@dai­ly­

Those in the mid­dle are 0.4% worse off

FAM­I­LIES will be worse off next year af­ter the Bud­get, the ESRI has found. The Govern­ment’s own think tank has re­vealed that the Bud­get will ac­tu­ally cost us money be­cause it doesn’t take in­fla­tion into ac­count.

In­fla­tion is cur­rently low but is ex­pected to rise next year to 1%, with some ex­perts pre­dict­ing it could go as high as 2%.

‘Ini­tial anal­y­sis shows that Bud­get 2018 leads to small losses at all in­come lev­els,’ Pro­fes­sor Tim Cal­lan of the Eco­nomic and So­cial Re­search In­sti­tute said.

On Wed­nes­day, the Ir­ish Daily Mail high­lighted that the Bud­get had taken more money out of the pock­ets of peo­ple pay­ing in­come tax than it had put in.

The Mail high­lighted that sup­posed tax cuts of €335m were more than out­weighed by the fail­ure to ac­count for even the 1% in­fla­tion level fore­cast for 2018.

The ESRI has now gone even fur­ther, say­ing a 3% in­crease should be fac­tored in across the tax and wel­fare sys­tems if we are to ac­count for pay rises next year in our bud­getary arith­metic. If we don’t do so, tax­pay­ers pay more tax than they should and pen­sion and wel­fare re­cip­i­ents lose out.

Worst hit by the fail­ure to do so were the two-fifths of all peo­ple in the two low­est-in­come brack­ets, who ended up over 0.5% worse off, ac­cord­ing to the ESRI anal­y­sis.

Those in the mid­dle were 0.4% worse off, while the high­est earn­ers were least hit, with de­clines in in­come of just 0.2%.

This is a far cry from the Bud­get give­aways trum­peted by the Govern­ment.

Prof. Cal­lan ex­plained yes­ter­day: ‘Per­sonal tax cred­its were left un­changed in Bud­get 2018, but would have risen by €50 un­der in­dex­a­tion. While the [lower rate] tax band was in­creased by €750, in­dex­a­tion would have im­plied a rise of €1,050.

‘Wel­fare pay­ments rose by €5, while in­dex­a­tion would have re­quired an in­crease of €6, or €7 for pen­sion­ers.’

In­dex­ing is when the Govern­ment in­creases the thresh­old at which you en­ter the lower and higher rate of tax to take in­fla­tion into ac­count. The vast ma­jor­ity of tax cred­its re­mained un­changed.

And wel­fare pay­ments won’t be in­creased un­til March 26, which means that the an­nounced ‘fiver’ rise is just €3.75 when av­er­aged out over the year as a whole.

With in­fla­tion at even 1%, a con­trib­u­tory pen­sion, for ex­am­ple, should go up by €2.30 over the whole year to ac­count for this.

This means that the real in­crease in the pen­sion next year is just €1.45, af­ter in­fla­tion – while pen­sion­ers are los­ing out to the tune of €2 com­pared to most work­ers, ac­cord­ing to the ESRI’s reck­on­ing.

Child ben­e­fit – the main wel­fare pay­ment to the ‘squeezed mid­dle – stayed the same, which meant that it ef­fec­tively fell by €4.20 per child, ac­cord­ing to the ESRI.

Fam­ily in­come sup­ple­ment went up by €10 for two or three chil­dren, which means that it ef­fec­tively barely budged af­ter in­fla­tion and went down for big­ger fam­i­lies.

Prof. Cal­lan wrote in the Ir­ish Times yes­ter­day: ‘While there have been a num­ber of im­prove­ments in the trans­parency of Ire­land’s fis­cal pol­icy over re­cent years, the open­ing Bud­get still op­er­ates on the ba­sis of un­changed cred­its and bands in nom­i­nal terms.

‘We do not ar­gue that in­dex­a­tion is nec­es­sar­ily the best pol­icy. It does, how­ever, pro­vide a more in­for­ma­tive bench­mark against which to mea­sure the dis­tri­bu­tional im­pact of ac­tual pol­icy than the unin­dexed pol­icy.’

Tax ex­pert Alan Mur­ray, of Mazars ac­coun­tants, de­scribed the sub­terfuge of not in­dex-link­ing bands and cred­its as a form of ‘stealth tax’.

But a Govern­ment spokesman said: ‘Peo­ple will have a mod­est amount more, whether as a re­sult of the tax changes and/or the in­creases in pen­sions and other State pay­ments such as to the dis­abled, lone par­ents, car­ers and the un­em­ployed.

‘This in­crease will be greater than pro­jected price in­fla­tion and be­fore any wage in­creases achieved as a re­sult of a re­cov­er­ing econ­omy.’

The ESRI es­ti­mated the im­pact of the Bud­get on a rep­re­sen­ta­tive

sam­ple of 8,000 house­holds. It reck­oned the in­dex­a­tion of tax bands, cred­its and wel­fare pay­ments would have cost in the re­gion of €1,100m.

But this did not hap­pen. In­stead, Fi­nance Min­is­ter Paschal Dono­hoe disin­gen­u­ously ig­nored wage in­fla­tion and took credit for dol­ing out €600m worth of ben­e­fits.

In ef­fect, we were short-changed to the tune of €400m, ac­cord­ing to the ESRI.

The ESRI’s com­par­i­son was made between Bud­get 2018 and a neu­tral, wage-in­dexed bench­mark with 3% pay in­creases.

The lat­est in­fla­tion sta­tis­tics show a de­cline in Septem­ber over­all due to ster­ling’s fall, which ben­e­fited clothes and food im­ports. But in­fla­tion is ex­pected to pick up next year.

Prices on av­er­age, as mea­sured by the Con­sumer Price In­dex, were 0.2% higher in Septem­ber, com­pared with 12 months ear­lier.

While mo­tor in­sur­ance fell, health in­sur­ance costs rose, driven up­wards by con­tro­ver­sial Govern­ment levies and a ‘stealth tax’ on pri­vate pa­tients, who are now be­ing charged four­fig­ure sums per night for hospi­tal stays, with the costs passed on by health in­sur­ers to the cus­tomers.

Bud­get Day: The Mail’s re­port

Re­port: Pro­fes­sor Tim Cal­lan

Leo Varad­kar: ‘Al­low­ing peo­ple keep own money’

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