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Tuesday 20 March 2018

A 'giveaway' budget? No, the majority of people lost out in changes, research reveals

Tim Callan said the welfare rise should have been €6
Tim Callan said the welfare rise should have been €6
Charlie Weston

Charlie Weston

Most people lost out from the changes in the Budget, despite the Government trumpeting it as a mini giveaway.

A new report from the Economic and Social Research Institute (ESRI) has found the changes in income taxes and the State pension did not go far enough to match wage growth.

Families with children were also some of the biggest losers, according to the analysis by Professor Tim Callan and others at the ESRI.

There were losses also for single people who do not have children, and double earners with no children, but to a slightly lesser extent.

Retired couples and those not in work also took hits.

The losses were despite the Government promoting the Budget as offering benefits across the board, within fiscal limits.

"Key findings include the fact the overall impact of policy was to reduce incomes somewhat below the levels which would have obtained if tax and welfare parameters were simply indexed in line with wage growth," the ERSI stated.

The Budget delivered a €5 a week rise in the State pension and in unemployment payments. But the pension rise is not due until March.

The fuel allowance is to last a week longer, with a new phone allowance. And there was some changes in how the one-parent family payment is calculated.

Income tax changes allow workers to earn an extra €750 before paying the higher 40pc tax rate, with the Universal Social Charge reduced.

Self-employed people got a higher tax credit.

However, the ESRI found that one of the tax changes was short of what workers would need to keep up with wage rises.

The Budget saw the amount of money people can earn, while still paying the lower 20pc income tax rate, raised by €750. This is known as widening the standard rate band.

But the ERSI found that proper indexation, to stop people paying more tax as their income rises from wage increases, would have required an increase of €1,050 in the standard rate band.

Prof Callan said the welfare rise should have been €6 a week, and €7 for pensioners.

"From a macroeconomic perspective, our estimates suggest that indexation of tax bands, credits and welfare payments would have cost in the region of €1.1bn. The resources used in Budget 2018 for personal taxes and welfare payments were some €400m lower than that figure, reflecting the particular squeeze on resources during this budgetary year," the report said.

Meanwhile, softer consumer sentiment for November has hinted at cautious rather than carefree Christmas spending.

The November index saw a monthly drop following September's reading, according to the KBC Bank/ERSI index.

Irish Independent

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