Temporary Budget cost of living measures failing low income households
As the Minister for Finance prepares to present Budget 2024, another ‘cost of living budget’, to the Oireachtas tomorrow, it is worth look back at the impact that cost of living measures that Government has already introduced have had to date. Our analysis shows that the legacy of Government’s cost of living measures has been to widen further the gap between the better off and those on the lowest welfare and work incomes, with few Budgetary measures targeted at low-income households where they can have most impact.
Budget 2023
Budget 2023 marked the third Budget of the current coalition Government. The first two of these were presented in the context of the challenging Covid-19 pandemic while the third was presented during the cost-of-living crisis. Each year, on the day after the annual Budget is announced, Social Justice Ireland produces an analysis and critique of that Budget based on an assessment of the direct distributive impact of the measures announced by Government. These principally capture changes to income taxes, welfare payments and other universal payments/entitlements. In our most recent assessment of distributive choices, just published, we examine the impacts of cost of living and energy crisis measures, and analyse the impact of the current Government’s three Budgets.
Since February 2022, Government have announced a series of taxation, welfare and electricity credit measures intended to assist all households with cost-of-living pressures. Given the challenges that so many households face in making ends meet, particularly those on the lowest incomes, much of this assistance is welcome and badly needed. However, our analysis indicates that there is a marked difference in the way that the cost-of-living measures have been delivered to households.
They have included temporary measures, such as electricity credits and one-off additional welfare and fuel allowance payments, alongside permanent measures announced as part of Budget 2023 such as changes to the value of core welfare payments and changes to tax credits and bands. It is a concern that in time the temporary measures will disappear, but the permanent changes will remain, as these permanent measures have favoured better off households.
The reliance on one-off measures to support low-income households in last year’s budget increased the Rich-Poor gap by €199 in the year, a gap which now stands at almost €1,000 per week. The inadequate increase in core social welfare rates left Ireland’s poorest worse off in 2023 compared to their situation in 2022. In contrast, Government allocated €1.26bn to tax initiatives in last year’s budget, two-thirds of which were allocated to permanent income tax changes which benefitted only those paying tax at the higher rate. Workers paying tax at the standard rate did not benefit from these changes. Budgetary policy should aim to alleviate the pressures on households who can least absorb cost of living increases, rather than increase the disposable income of wealthier households.
Cumulative impact 2020-2023
Looking at the cumulative impact of changes to income taxation and welfare over the Government’s three Budgets. This analysis captures the taxation and welfare measures announced in those Budgets plus various cost-of-living crisis energy credits and welfare payments announced in 2022 and 2023. Our analysis highlights how low-income working families, those with incomes below the standard rate income tax threshold, gain least from the Government’s measures over the past three years. It also highlights the marked difference in impacts of temporary gains from one off cost of living supports and permanent gains from welfare and taxation changes.
Comparing 2020 to 2023 for households with jobs, the weekly income gains range from €8.84 cent per week for low-income couples on €30,000 to €55.61 per week for couples with incomes over €80,000. Earners on both the living wage and the minimum wage gain more than the value of taxation, welfare, and one-off cost of living changes on account of the increase in the level of those hourly rates.
Among households dependent on welfare, the gains have ranged from €28.61 per week for single unemployed individuals to €72.28 per week for unemployed couples with 2 children over 12 years of age. The gains are largest for welfare dependent households with children who benefit from a one-off child benefit top-up and a one off back to school allowance increase in 2023. However, these payments will not carry over to 2024 income and the relative standing of these households is likely to deteriorate in future years.
By their nature, one-off supports cannot tackle the embedded problem of income inadequacy in vulnerable households. Additional ‘double’ payments to those on social welfare while welcome, are simply one-off events. They fail to compensate for inadequate core social welfare rates and they fail to compensate for the rise in the cost of living particularly evident in food and energy prices.
Budget 2023’s legacy will be to widen further the gap between the better off and those on the lowest welfare and work incomes. In particular, the Budget provided least for the large cohort of workers earning around €15 to €20 per hour. Government must not repeat this mistake in Budget 2024.