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Budget widens rich-poor gap by €506 a year

Budget 2016 was the fifth regressive Budget in a row. While it was not as regressive as in previous years and contained some gain for everyone, there was much more for the better off and far less for poor and vulnerable people. 

While single unemployed people will gain €95 a year, single people earning €75,000 will gain almost ten times as much i.e. €902.  In the case of couples, the unemployed will gain €157 a year while a couple with two earners on €125,000 a year will gain nine times as much i.e. an extra €1,408 a year.

Rich-poor gap widens

Budget 2016 widened the rich-poor gap by €506 a year.  This measures the gap between the disposable income of a single unemployed person and a single person on €50,000 per annum. If compared with people on higher salaries the rich-poor gap has widened even more (cf. p.9) 

The rich/poor gap has widened by €1,003 in two years as a result of this government’s budget decisions. 

Social Justice Ireland’s  complete Analysis and Critique of Budget 2016 may be accessed here.

Minimum wage increase very positive

The Budget 2016 announcement of an increase of 50 cent per hour to the statutory national minimum wage is a welcome development. This increase will ensure that a full-time worker on the minimum wage will receive an additional €1,014 per annum in gross pay.

However, the new hourly minimum wage rate of €9.15 is more than 25% below the living wage of €11.50 per hour.

Deprivation and exclusion

It is important to remember that in Ireland in 2015:

  • Over 376,000 people are living in consistent poverty, double the figure in 2008, according to the latest CSO statistics.
  • 1.4 million people are experiencing deprivation, an increase of 128% since 2008.
  • Overall, nearly 700,000 people are still at risk of poverty, of which 211,000 are children.
  • Approximately, one in 6 children and one in 10 people aged over 65 are at risk of poverty.

Budget 2016 decided to give people in poverty its lowest priority and, instead, gave the major part of available resources to the better-off.

Three false assumptions on taxation

There are three false assumptions on taxation underpinning Budget 2016.  It is untrue to claim that:

  • Ireland’s total tax-take is high;
  • poor people pay no tax; and
  • €70,000 a year is middle-income.

Total tax-take too low

Despite significant increases in the tax-take from households (both directly and indirectly) since the outset of the recession, the scale of collapse in Ireland’s tax revenues has been dramatic.  In Budget 2016 Government allocated half of all available resources to tax cuts.  Social Justice Ireland believes that cuts in taxation should be financed by other tax increases applied in a fair manner.

As a policy objective, Ireland should collect a level of taxation capable of adequately supporting the country’s economic, social and infrastructural requirements. The current low-tax model is not sustainable and the current set of Government projections for taxation revenue is unrealistic.

Social Justice Ireland believes that over the next few years policy should focus on increasing Ireland’s tax-take to 34.9 per cent of GDP, a figure defined by Eurostat as ‘low-tax’. 

Poor people pay a higher proportion of their gross income in tax

The often-repeated claim that poor people pay little or no tax is one of the major falsehoods on which bad policy decision-making is based. In fact people with less money spend far more of their money on things that are subject to indirect tax - primarily VAT and excise duties.

A 2014 study by Dr Micheál Collins of the Nevin Institute based on CSO statistics shows that the poorest 10 per cent of households (with average gross income of €10,000) pay just over 30 per cent of their gross income in total tax (indirect and direct). The richest 10 per cent (with an average gross income of €155,000) pay just under 30 per cent in tax (direct and indirect). 

Government’s claim to fairness when it proposes to reduce the top tax rate is false. The repeated emphasis on the marginal tax rate is a means of hiding the fact that Government is intent on continuing to support the better-off at the expense of the poor and vulnerable. 

Middle income is €25,000 - €40,000

Government constantly describes people on ‘middle income’ as those earning between €32,800 and €70,000 and declares that its policies favour this group.  Revenue statistics however show that based on tax units the middle-income range is between €25,000 and €40,000. Tax units earning €50,000 are in the top quarter of earners. This provides further proof of the fact that despite the ’spin’ put on the story, Government policy is clearly focused on supporting the better-off.  This choice should change.

Knowledge Development Box

The harsh approach to the less well-off lies in stark contrast to the extremely generous approach of Government to multi-national companies. The latest manifestation of this is the Knowledge Development Box (cf p. 15 of Analysis).

Investment too low

Both the Budget and the recent Capital Investment Plan 2016-2021 outline commitments to enhanced public capital investment in the years to come.

While these improvements are welcome, they offer limited progress given the scale of underinvestment in the economy over the past eight years and the notable capital investment deficits that persist.

Long-range approach missing

Ireland is currently facing major challenges on issues such as health, childcare, housing, homelessness, poverty and rural decline.   Budget 2016 will make very little impact on these major issues.

Instead it will widen the poverty gap and deepen divisions in Irish society.  Budget 2016 was a missed opportunity.

Oireachtas denied access to essential information

 In its first Budget this Government claimed they were going to follow a new model based on “transparency, openness and clear structural planning”.  Social Justice Ireland welcomed that commitment.

However, what has emerged in the years since then is an extremely secretive process which excludes Oireachtas members and Oireachtas Committees as well as most Government ministers. 

In practice this process, among other things, means that members of the Dáil and Seanad do not have access to essential information on which they can make informed judgements on the Budget and the choices Government has made.

It also fails to harness the experience, knowledge and research of a wide range of groups (with the exception of insiders such as the Financial Services Industry).

How can Oireachtas members have an informed discussion on the budget when so much of its content is opaque and its basic numbers are not clear?

But that is not all. There has also been a total failure to honour commitments to measure the impact of the budget to ensure it is poverty-proofed. 

As Social Justice Ireland consistently shows it is possible to measure the impact of various proposals in advance of their implementation.  Government, however, publishes very limited information showing the impact of its Budget decisions.

Social Justice Ireland’s  complete Analysis and Critique of Budget 2016 may be accessed here.