herald

Friday 15 December 2017

Squeezed middle must get break in upcoming Budget

New research from the ESRI, which shows that middle-income earners bore the brunt of the post-2008 tax increases, reinforces the case for targeted tax cuts in next October's budget.

Finance Minister Michael Noonan's fourth budget is still eleven weeks away but the campaign to influence the contents of his October 14 speech is already well under way.

As he prepares his 2015 budget Michael Noonan faces the most benign fiscal environment of any Irish Finance Minister since Brian Cowen in 2007.

Meeting the 3pc of GDP deficit target agreed with the Troika will now take far less than the €2bn of spending cuts and tax increases that had previously been envisaged.

After six years of grinding austerity which took €30bn in public spending cuts and tax increases out of the economy, the equivalent of almost a quarter of the value of our annual economic output as measured by GNP, Michael Noonan will be in a position to distribute at least some goodies on October 14.

So who should be the first to benefit from Mr Noonan's loosening of the purse strings?

brunt

A paper published this week by the Government's favourite economic think-tank the ESRI shows that, contrary to what many pressure groups and lobbyists would have you believe, the main brunt of the post-Celtic Tiger fiscal adjustment has been borne by middle-income earners.

This is because the number of high earners fell very sharply after the bust with the numbers of those earning over €100,000 falling by almost 15pc between 2007 and 2011, according to Revenue Commissioners data.

This collapse in the number of high earners occurred at the same time as most social welfare payments were maintained, despite the huge increase in the number of claimants as the unemployment rate soared from just 4.7pc in 2007 to 14.7pc in 2012.

With the number of high earners, who contributed 46pc of total income tax receipts in 2007, collapsing and social welfare spending going through the roof, something had to give.

That something was the so-called "squeezed middle".

Average disposable, or after-tax, incomes have fallen by 8pc from €22,800 per head in 2008 to €20,900 in 2014, according to the ESRI.

However, these figures almost certainly understate the true extent of the fall as they take no account of higher VAT and excise duties.

What is indisputable is that middle-income earners have been absolutely hammered by USC, reductions in tax bands, cuts in child benefit as well as increases in indirect taxes since 2008.

payback

Now it's payback time.

Agriculture Minister Simon Coveney (pictured left) has already jumped on the bandwagon, promising that the budget would help what he called "my generation", one struggling with large borrowings and negative equity.

It had better.

If Michael Noonan fails to deliver for middle income earners on October 14 then armageddon looms for both of the Coalition parties at the next general election.

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