Families ‘up to €500 worse off a month due to budget changes’

Working people are having to live on 10% less than they were used to because of the impact of harsh budgets during the last five years.

An analysis by Grant Thornton, said income tax changes, the introduction of the universal social charge and cuts to child benefit have had a stark impact on the disposable income of middle-income households.

Even if workers have been spared unemployment or pay cuts, the accountants have worked out that budgetary measures have left the average family between €300 and €500 worse off each month.

In the case of a family in which two parents work and earn €40,000 each, and they have two children, the analysis indicates they are €6,100 worse off on an annual basis.

This equates to a 10% drop in their disposable income or €511 a month.

It is marginally worse than what would be expected for single people, who also earn €40,000; and couples who do not claim child benefit.

The biggest hit all workers have had to endure is the controversial social charge, which is levied at 7% against the entire income of all earners.

Tax partner at Grant Thornton, Peter Vale, said low and middle-income earners have paid a heavy price to help address the annual national deficit that opened up after the property crash: “Whilst five years of austerity was necessary to restore economic stability, it’s clear low to middle-income earners have paid a heavier price in terms of the percentage increase in taxes they pay.”

He also said the lack of spending money had a knock-on effect for the wider economy: “With disposable income sucked out of the economy to shore up government finances, it is no surprise that consumer spending remains weak and the strength of any economic recovery uncertain. It’s worth noting the effective tax rate for well-off families has risen close to 40%, with high earning professionals likely seeing disposable income down a minimum of €10,000 since 2008.”

Grant Thornton said it expected there to be additional hits in the upcoming budget, especially in the area of tax relief on pension contributions and increases in DIRT to discourage saving.

The analysis was published on the eve of the final set of monthly exchequer returns, out today. These are the figures that will guide Finance Minister Michael Noonan’s key budget decisions.