Paschal Donohoe freezing welfare, tax bands and credits in this week's budget have affected people who are already the worst off and will push up child-poverty-at-risk rates, according to leading think tank, the Economic and Social Research Institute (ESRI).
In its first assessment examining the relative winners and losers of Budget 2020, researchers at the ESRI told a conference that the budget overall was “sensible and prudent” as the Government prepared the State’s defences for a potentially damaging crash-out Brexit.
But the tax measures will mean most households will end up with lower incomes while the poorest will fare relatively badly because low-income groups depend more than others on now-frozen welfare payment rates.
The ESRI again reiterated its previous assessment that the Help to Buy Scheme – designed to help first-time buyers save for a deposit to buy a home – is “poorly designed” because there is evidence that many people tapping the incentive don’t need it in the first place and it could lead to higher house prices.
Karina Doorley and Barra Roantree said that the findings take into account forecasts for wage and price increases and establish a benchmark to assess the ways different income groups have fared in this budget compared with previous budgets.
Some of the hit taken by low-income households is offset by spending programmes and by the Government’s National Childcare Scheme, but relative child poverty rates will nonetheless increase, Ms Doorley said.
“Budget 2020 disproportionally impacts welfare recipients compared to a wage-indexed 2019 Budget,” she said.
On the same basis, the incomes of lone parents and retirees whether retired couples or in single households fare relatively badly, according to the assessment.
And measures that look at “poverty gaps” and “at-risk-of-poverty rates” for all households, as well as for children, will rise because of the budget, under the benchmarks used by the ESRI in its assessment.
The budget was neutral, however, when it assessed whether it benefited women or men the most, the ESRI said.
At a cost of around €1.5bn, Ms Doorley said that indexing tax and welfare was “costly” and that some of the regressive effects of the budget would also be offset by “hard to value” spending on healthcare.
And the budget was a “prudent overall fiscal stance with extra spending if a no-deal Brexit” were to happen, the ESRI said.
Mr Roantree said the budget package included increases of more than €2.5bn in current spending and €794m in capital spending, and resulted in a net increase in taxes of €426m for the exchequer.
On the Help to Buy Scheme, Mr Roantree said the decision to extend the incentive to 2021 will cost the exchequer €200m and has worked out “far more expensive than anticipated” when first introduced three years ago.
Economists generally do not like property transaction taxes but the hike in the commercial property stamp duty, which raises over €140m, has a “coherent rationale” given the risk of overheating in construction, he said.