ESRI: Rich hit harder than ‘squeezed middle’

The so-called squeezed middle classes may feel they have been hit hardest by the succession of austerity budgets but statistics show the greatest pressure lies elsewhere.

Analysis of the six annual budgets since 2009 show the richest in Ireland have taken the biggest cuts in income overall, with the poorest next in line to lose out.

The Economic and Social Research Institute (ESRI) which carried out the study said: “Policy impacts were greatest at the top, and then at the bottom of the income distribution — contrary to some perceptions of a particularly sharp squeeze on middle incomes.”

Budget 2014 is the exception, with the ESRI saying it will have a disproportionate effect on the poorest, with the richest hit next and the middle classes to the least extent.

The analysis is significant in the context of measuring the impact of budget measures on disposable income and spending power.

A wide range of direct and indirect tax changes and welfare measures introduced over the 2009-2014 period were included in the research, along with the cuts to public service pay and changes in pension arrangements contained in the Haddington Road Agreement.

Taking all six budgets together, the greatest impact was on those with the highest 10% of household income, as they lost about 15.5% of total income, mainly through pay cuts, increases in taxes such as capital gains tax and DIRT (deposit interest retention tax), the introduction of new charges such as the property tax and the cutting of tax relief on pensions and private medical insurance.

Those with the lowest household income lost on average 12.5%, mainly through cuts in child benefit, one-parent family earning thresholds, back-to-school allowances and the loss of the bonus Christmas welfare payment.

Vat increases and the introduction of the carbon tax which increased solid fuel costs was also assessed to have had a greater impact on lowest income households who are often in poorer quality housing with greater reliance on inefficient heating systems. Middle income groups were hit by losses of between 11% and 12%.

Additional measures hitting the poorest harder than others include the reduction in jobseeker’s allowance, further cuts in child benefit for large families, abolition of the telephone allowance for older people and the increase in the minimum contribution couples must make towards their rent under the Rent Supplement Scheme.


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