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Budget 'built on pandemic measures'
Ministers Paschal Donohoe and Michael McGrath Pic: RollingNews.ie

16 Oct 2020 / ireland Print

Budget 'built on pandemic measures'

An analysis carried out by the Economic and Social Research Institute (ESRI) has found that the tax and social welfare measures announced in Budget 2021 will benefit the lowest-income families most.

After adjusting for inflation, the ESRI found that the new measures would lead to a small 0.2% increase in households’ disposable income overall. The increase, however, was twice this figure for those households in the lowest income bracket.

Progressive

The institute said that while increases in carbon tax and tobacco duty disproportionately affect lower-income households, these will gain significantly from increases in social welfare payments for adults with children and those living alone.

“These increases are sufficiently large to reverse the regressive impact of increases to indirect taxes and result in an overall distributionally progressive budget,” the ESRI said.

The think-tank said the budget measures built on changes to the tax and welfare system introduced earlier this year to boost the incomes of those affected by pandemic-related job losses.

Cushion

The ESRI estimates that without initiatives such as the Pandemic Unemployment Payment (PUP) and Employment Wage Subsidy Scheme (EWSS), disposable incomes would have fallen by 7%.

These schemes helped to reduce the drop to an average of 3%. The institute said Budget 2021 measures would cushion income losses by a further 0.2 per cent on average.

The ESRI estimated the monthly cost of employment affected by COVID-19, in terms of welfare spending and income tax foregone, to be around €170 million per 100,000 displaced workers, with the PUP and EWSS accounting for almost half of this.

Withdrawal

It warned, however, that the withdrawal of the PUP and EWSS next year may lead to increases in income inequality and poverty rates in the absence of a labour market recovery.

Senior research officer Claire Keane said groups such as the young and low-income families may lose substantially more, adding that targeted measures may be needed to support their incomes beyond Spring 2021.

Gazette Desk
Gazette.ie is the daily legal news site of the Law Society of Ireland