Budget 2016 won't tackle rising inequalities

TASC today released an equality analysis of Budget 2016, which analysed both the tax and spending changes. It shows that the tax cuts announced will give the greatest benefit to a single person earning €70,000, which is the same “sweet spot” as last year’s budget.

The report notes that changes announced in the Budget have to be considered in light of the fact that three-quarters of the pre-tax income gains in the last five years have gone those earning €70,000 and above.

“Our research shows that as the economy recovers, more than half of the gains in incomes before tax are going to the Top 10% of earners. While income tax and USC mitigate this, the regressive nature of the tax changes announced in Budget 2016 give the greatest benefit to higher earners, and undermine the ability of the tax system to deal with rising market inequality,” says TASC Policy Analyst Cormac Staunton.

Key findings of the analysis include:

• A single earner on €70,000 will gain €902 per year which is 2% of their take home pay. 
• A single person on a middle income of €25,000 will gain €227 for the year, about 1% of their take-home pay. 
• A person on €35,000 will gain €377 – just over €30 per month or 1.3% of their take home pay.

In the run up to the Budget, TASC recommended focusing on increased public spending rather than on tax cuts as a way to make the recovery more inclusive and to create a more equitable and sustainable economy.

“While there are some welcome announcements, particularly in the area of childcare, the increase in spending is insufficient to address the various social crises and austerity-related underinvestment” added the report’s co-author and TASC Policy Analyst, Dr Rory Hearne.

“The spending allocations for future years show that there are no plans for significant increases and that spending will in fact fall as a proportion of GDP. According to the Government’s own figures, by 2019 we are likely to end up with the lowest government expenditure in the EU at just over 30% of GDP, against a Euro area average that will be closer to 50%.”

The report analyses changes in Budget 2016 in relation to income, wealth, public services, taxation, family, personal capacities and the cost of living.

“Given the scale of the adjustments that have taken place over the crisis period, and the increases in income by those already earning the most, cuts to income tax which benefited higher earners at the expense of public investment will increase economic inequality” concluded Dr Hearne.

The report notes that “this approach will leave Ireland extremely vulnerable and unprepared for the inevitable slow-down in economic growth, which could come sooner than currently projected given the fragility of the international economic context and rising global inequality.”

TASC recommends that in future Budgets should:

• Focus on public investment rather than tax cuts to increase spending as a proportion of GDP. This will benefit both the economy and society.
• Re-balance Ireland’s welfare model so that public services play a much greater role, rather than the current over reliance on direct welfare payments to access necessary goods through the private market.
• Involve greater openness in the Budget making process, including an Equality Impact Analysis prior to the Budget being published.

Full Report is available here