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Pain for squeezed middle will not end any time soon

Confirmation that middle-income earners have been hardest hit by the economic downturn should come as no surprise. With water charges coming later this year the squeezed middle will be squeezed even harder.

It’s official - not that we need to be told: middle-income earners have been worst hit by the economic downturn. A government-sponsored study has found that middle-aged middle-income earners have borne the brunt of Ireland’s post-2008 fiscal austerity.

surprised

The only surprise is that anyone should be surprised. Ever since the late Brian Lenihan’s first Budget in October 2008, it is those on average incomes who have suffered most from a squeeze which has seen close to €30bn taken out of the economy in public spending cuts and tax increases.

At every turn it is the squeezed middle who have found themselves footing the bill. Anyone earning more than €16,000 a year - just half the average private-sector wage - is now paying 7pc Universal Social Charge.

The much-loathed USC is only the most visible of the new taxes and charges with which middle-income earners have been clobbered since 2008. Homeowners must now pay property tax on their homes, tax relief on health insurance premiums has been slashed, income tax bands have been shrunk, excise duties raised and the VAT rate increased from 21pc to 23pc.

And that quite literally isn’t even the half of it.

As well as overt tax increases and introducing completely new taxes, the Government has also introduced a series of measures, so-called “stealth taxes” that have also slashed the disposable incomes of middle-income earners.

While Social Protection Minister Joan Burton, whose department funded the survey, has often boasted that weekly social welfare payments have not been cut on her watch, child benefit - which is paid to the mothers of all children aged under 18 - has.

Even before tax relief on so-called “gold-plated” health insurance policies was capped in last October’s Budget, premiums soared as the Department of Health squeezed the health insurance companies to make up some of the shortfall in its funding from the Government.

Middle-income earners were confronted with a Hobson’s Choice of either paying through the nose for health insurance or giving up their cover altogether, something which almost quarter of a million people have done over the past five years.

The latest report contradicts previous assertions from many economists that it was the better-off and those on social welfare payments who had been hardest hit.

One of those who had been most outspoken on this topic was ESRI economist Tim Callan who in 2012 declared that: “When I hear talk of a squeezed middle, I want to reach for a gun.”

EVIDENCE

Go ahead Tim, make my day!

Now in a delicious irony, a report co-authored by two other ESRI economists, Bertrand Maitre and Helen Russell, states unequivocally that: “There is clear evidence of a squeeze for the precarious and lower middle-income class groups.”

If anything, the latest report understates the full extent of the losses suffered by middle-income earners since 2008.

Unfortunately, the latest report only covers the period up to 2011. Over the past three years even more pain has been piled on the squeezed middle as Finance Minister Michael Noonan has ruthlessly picked their pockets in each of his three Budgets.

And there is even more bad news to come. Later this year, Irish Water will send out the first water bills to the country’s 1.6 million households.

While government sources claim that the average annual bill will be only’ €240, don’t believe a word of it.

When all of the exemptions are factored in those who end up actually paying for their water - ie the squeezed middle - will be hit with bills of €500.

When marginal tax rates of over 50pc are taken into account, this means that middle-income households will have to earn at least €1,000 before tax to pay for their water.

Which is why anyone who believes that water charges are a done deal is living in Cloud Cuckoo Land.

Far more likely is that the backlash from middle-income earners - who have been sacrificed to spare Labour’s blushes - will further increase the strain between the two government parties.

But isn’t the Government holding out the prospect of tax cuts next October?

Surely such tax cuts will begin to undo the damage inflicted on the disposable incomes of middle-income earners?

Believe that and you will believe anything. Middle-income earners will be feeling the pain for a long time to come.


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