Saturday 3 December 2016

Better-off families hardest hit

Brendan Keenan Economics Editor

Published 24/02/2012 | 05:00

BETTER-off families were hit much harder by a series of austerity budgets than lower earners, according to new research from the think-tank on economic affairs.

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And elderly people have also succeeded in avoiding the worst of the cuts over the past three years, losing just 3.6pc of their disposable income on average.

This compares with an average loss of 8.4pc for all types of household and 11.7pc for couples with children and two incomes, according to the Economic and Social Research Institute (ESRI).

It looked at a percentage drop in disposable income over four budgets from 2009 to 2012 and also found that government workers, who are mostly middle earners, have lost out more than those in the private sector. This was because of the impact of pay cuts and the pension levy in the private sector.

But there is no evidence of a "squeezed middle" after a series of tax rises and spending cuts, new research finds.

"When I hear talk of a squeezed middle, I want to reach for a gun," said senior ESRI researcher Tim Callan. "That's not what the evidence shows."

Comparisons show that those on middle incomes are more squeezed by austerity in Britain -- where the term was invented -- than in Ireland.

The ESRI found that the incomes of the top 10pc of earners -- those who have more than €3,000 of spending money per month -- have fallen by 13pc in real value since 2009.

Disposable

Meanwhile the bottom 10pc of earners, with disposable income of less than €900 a month, suffered a 5pc drop in real terms.

And low earners who had between €900 and €1,100 per month saw their spending power fall 3.8pc. This group covers most pensioners.

"The major factor is the special treatment afforded to the elderly, with a rise in the state pension in 2009 and no subsequent downward adjustment, unlike other welfare payments," Mr Callan said.

Middle income workers -- defined was those with take home pay of €1,500 to €2,200 -- have seen losses of 8pc. But among private sector workers, who did not experience the same level of pay cuts, nor the pension levy, the loss was less than 7pc.

"The net effect over the whole period is strongly progressive -- rising in line with incomes -- and is among the most progressive in six EU countries examined in a recent study," Mr Callan said.

The ESRI expects personal spending in Ireland to fall by almost 2pc in real terms this year.

Emigration is expected to continue running at around 50,000 people a year.

Austerity will have to continue, the ESRI says in its main quarterly economic report.

In its first forecast for 2013, the institute sees the domestic economy continuing to shrink, but at a slower pace, while exports will do better than this year.

"It is important to remember that austerity measures are absolutely necessary to restore sustainability to the public finances," the report says.

"The real rate of interest is well above the growth rate of the economy. Hence it is necessary to generate a primary budget surplus (before interest costs) sufficiently large to prevent the debt ratio rising continuously."

The ESRI thinks that national income (GNP) fell by over half a per cent last year, while the output of goods and services (GDP) rose by almost 1pc.

It expects little change this year, but an easier Budget and a better international situation should see GDP grow by 2.3pc next year, and national income rise by 1pc.

Irish Independent

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