Nat O'Connor: As a follow-up to my pre-Budget post on proportions, we can now look at the results of the announced USC and income tax changes. There are seven changes in this mix:
Taking the example of single PAYE workers, the changes affect people as follows (in ascending order of income):
You can check the figures - and see the effects on couples - using the helpful Deloitte online tax calculator, which shows the pre- and post-Budget income figures.
The bottom line is that people from Minimum Wage levels (€17,576) to €33,800 gain €174, whereas people on incomes over €33,800 gain €384 or more, and people on incomes above €70,000 gain the maximum benefit of €746.
Whether or not you think this is equitable or 'fair' depends on whether you think the distribution of net incomes was fair in the first place. What Budget 2015 did, in terms of net income, is widen the gap between those on higher and lower incomes. Those in the Top 10% (€70,000+) got 4.3 times more cash than the many workers who earn between €17,576 and €33,800.
Importantly, bank CEOs and others on high incomes of say €500,000 will not benefit hugely from the lower 40% income tax rate, because of the new 8% USC, which is an important and valuable safeguard for equality. They only get the same €746 benefit, and also have their use of tax reliefs shaved as the extra point of USC is immune to most tax breaks.
Another way to look at what happened is to compare Person A on €17,576 (minimum wage), Person B on €35,000 (average wage), who benefits a little bit from the income tax changes as well as the USC changes, with Person C on €70,000 (Top 10%).
As the result of a single budget - where available resources were still constrained - to widen the net income gap between some single people by €572 (and even more for some couples) is significant.
Did those on higher incomes really need the €746 they received in extra net income, compared to people on lower incomes or those reliant on public services? Will it really boost consumer spending in the economy and create jobs, or will it be used to pay down debt or spent on imports? TASC's analysis has always been that giving a little money to a lot of people will be more effective at getting money spent on essentials in the local economy to boost local jobs.
More importantly, what is the direction of Government tax policy? The signal from Government is that the gap in net incomes will be widened further, as they continue to target a reduction of income tax on the upper middle income group (those on €34,000 to €70,000).
The alternative is public services rather than tax cuts, as the effect would be diluted and it would not be affordable to give the many on low incomes the same amount of cash from tax cuts given to the few on upper middle incomes. This alternative is also based on the unpopular truth that people in low incomes pay relatively little tax and social insurance in Ireland compared to what is paid by workers across the EU. Tax cuts are illusory if out-of-pocket charges for public services will mount up due to overall under-funding of services.
Rather than giving low to middle income workers small tax cuts, the focus should be on targeted spending on public services - including perhaps some new services like properly subsidised childcare - as these would benefit everyone in society much more equally.
Nat O’Connor is a member of the Institute for Research in Social Sciences (IRiSS) and a Lecturer of Public Policy and Public Management in the School of Criminology, Politics and Social Policy at Ulster University.
Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.
Nat holds a PhD in Political Science from Trinity College Dublin (2008) and an MA in Political Science and Social Policy form the University of Dundee (1998). Nat’s primary research interest is in how research-informed public policy can achieve social justice and human wellbeing. Nat’s work has focused on economic inequality, housing and homelessness, democratic accountability and public policy analysis. His PhD focused on public access to information as part of democratic policy making.