12 Dec 2018

Pensioners are biggest losers as ‘fair’ Budget sees them out of pocket

Filed under: Business News

For all his promises to “promote fairness” in his 2019 Budget, Finance Minister Paschal Donohoe’s measures will see some sections of society falling further behind, with pensioners the largest single group to see their position eroded, according to a new study.

The Economic and Social Research Institute assessed the impact of the budget changes compared with a situation in which tax credits, thresholds and maximum benefits were increased in line with forecast wage rises.

The nation’s 637,000 retirees were among the biggest relative losers, according to the study published today.

A retired single person will be 1.07pc worse off under Mr Donohoe’s budget, while a retired couple will lose 0.93pc of their disposable income, relative to where they would have been had the changes been linked to wage rises.

The state pension is the main source of income for most, and it is only among the richest 30pc that it accounts for less than half their annual income.

That leaves pensioners particularly vulnerable to changes in the state tax and welfare system.

On average, the ESRI said the tax and benefit changes would reduce households’ disposable income by 0.7pc compared to a neutral benchmark, with lower income households seeing a loss of 0.8pc because of the decision to freeze personal and employee income tax credits in cash terms.

Those on higher incomes will on average see smaller proportional losses of 0.5pc.

“Freezing personal and employee tax credits when prices and wages are rising amounts to a real terms tax rise, which take proportionally most from lower-to-middle income households,” said Barra Roantree, a research officer at the ESRI.

“Tax cuts in this budget were focused on the 25pc of households that contain a higher-rate income taxpayer.”

The largest overall decline in disposable income was seen among women with children who were in a couple where one worked. That group incurred losses of 1.76pc.

Women in no-earner couples with children lost 1.48pc relative to benchmarking against wage rises.

The study argued that a cut in the Universal Social Charge and a reduction in the higher rate of employer contributions into the national Social Insurance Fund would have little impact on the lowest paid workers.

While 1.7 million people will end up paying less tax as a result of a cut in the Universal Social Charge from 4.75pc to 4.5pc, it will do little to incentivise workers on the minimum wage of €9.80, who will now hit the USC threshold by working more than 39 hours a week instead of 38 at present.

“This means low-paid part-time workers can be left slightly worse off by a pay increase, or working more hours,” the report said.

The ESRI said that a similar cliff-edge also applies to PRSI where, despite an increase in the higher rate paid by employers, those firms that employed workers on the minimum wage for 39 hours a week would see a €451 a year rise in costs.

That measure, the ESRI said, would disincentivise firms from offering extra hours or pay rises.

The report also warned of the State’s over-dependence on company tax revenues, almost 40pc of which are paid by just 10 companies.

The risk is that those companies may scale back their presence here, or tax changes elsewhere in the world may make Ireland’s low tax rate less attractive for them.

Article Source: http://tinyurl.com/kbwqb42

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