‘Squeezed middle’ €4k worse off than they were before Budget ’23
COUNTING THE YEARLY COST OF RUNAWAY INFLATION
HOUSEHOLDS in Ireland’s ‘squeezed middle’ are now more than €4,000 worse off than they were before last year’s budget, Irish Mail on Sunday analysis has found.
The scale of households’ shrinking income comes as Finance Minister Michael McGrath this week looked to ‘temper expectations’ about proposed tax breaks and supports ahead of next month’s Budget 2024.
It is widely expected that the €6.4bn in permanent spending increases and tax cuts will include Taoiseach Leo Varadkar’s plan to reduce the tax burden on middle-income earners.
However, this €1bn worth of reliefs is dwarfed by soaring food and electricity hikes and a series of crippling mortgage interest rate hikes that have decimated household budgets over the past year.
Our analysis examined the most basic living expenses of a typical family of four with two school-aged children, earning the median household income for that cohort – €62,388 after tax, according to the Central Statistics Office’s (CSO) figures for 2022 – and on a tracker mortgage.
The conservative estimate factors in only basic living expenses and includes credits handed out by the Government over the past 12 months.
The CSO’s Consumer Price Index (CPI) – which shows how much individual items have gone up over a certain period – was used to calculate the difference in food,
‘There will be an overnight increase in repayments’
electricity, gas and car fuel. For household expenses including bills – but not counting mortgages – food represents the biggest increase since last September.
A family spending €185 a week on food last September would be spending €200 on the same products this year, according to a 12-month inflation rate for food of 7.7%. This is a difference of €780 a year.
An average electricity bill for a three- or four-bed semi is €176 a month or €2,113 a year, according to cashsaving website Money Guide Ireland. This is €504 more than last September, according to a 12-month inflation rate of 25.1%.
Gas will cost €461 more per year based on an average annual bill of €1,720 and a 12-month inflation rate of 36.6%.
Petrol and diesel, according to the CPI, have gone down in price by 12.5% in the past year, meaning a family putting €70 in their car each week in September 2023 are now spending €8.75 a week less than at this time last year – or €455 over a year.
The biggest jump in overall expenses is in mortgage repayments for those on variable or tracker mortgages.
The average increase for tracker mortgage-holders since last year is €280 a month or €3,360 a year, according to mortgage experts, with the tracker rate now at 5.65%.
Martina Hennessy of mortgage advisors Doddl.ie warned that, while tracker mortgage-holders have suffered the most, having seen their rates ‘ratchet up’ over the ten European Central Bank increases, ‘there are approximately 50,000 [non-tracker] mortgage holders whose fixed rate will end within 12 months’.
She told the MoS: ‘This will result in an overnight increase in mortgage repayments which, given the rate of rising interest rates, could affect affordability.
‘Just 18 months ago a mortgageholder could have locked into a five-year fixed rate of 2.5%. However, those rolling off these low-level short-term fixed rates will now be faced with a huge increase in monthly repayments which could affect affordability. Fiveyear fixed rates of up to 4.85% are now the norm from the pillar banks.
‘If we take a mortgageholder with a €250,000 mortgage balance and term of 30 years rolling off a 2.5% rate onto a 4.85% rate, their repayments will increase by €331 per month.’
When year-on-year differences for the above expenses are added together – and subtracting the €455 saved on car fuel – it results in an annual additional household expenditure of €4,650.
When the Government’s three €200 energy credits per household are taken into account, the extra expenditure come to €4,050.
The Consumers’ Association of
Ireland (CAI) said the analysis of household budgets – coupled with already flagged Budget measures to alleviate the rising cost of living – shows the Government has ‘no idea at all how the cost of living is affecting ordinary people’.
CAI chair Michael Kilcoyne told the MoS: ‘They increased the duty on petrol and diesel [in June]. That has an effect on absolutely everything because goods have to be transported, and that is something they didn’t have to do. This is a direct taxation decision.’
Mr Kilcoyne said the Government’s energy credits of the last year have ‘gone to the profits of these energy companies’.
He added: ‘There is no control on their profits, no control on what they can charge.
‘The energy regulator can’t do anything to set the price of electricity. The Government hasn’t given it the power to do so. And so I don’t see any real commitment from the Government to help people who are suffering, many of them really badly suffering.’