Lowest-income households 'hardest hit' by indirect taxes 

The Parliamentary Budget Office said about 16% of all tax receipts in the State in 2023, some €13.4bn, came from households paying indirect taxes.

The lowest-income households in Ireland are spending almost one-third of their income on indirect taxes, while the wealthiest households spend less than 8% on the same taxes.

New analysis from the Oireachtas’ independent Parliamentary Budget Office said those in low-income rural households face a “disproportionately large” spend of their income to pay indirect taxes.

It recommended policy changes would be "useful" to ensure low-income households across the country are protected from future carbon tax rises, which can be “regressive” and again have a disproportionate impact on rural households.

All Irish consumers pay indirect taxes in the form of Vat on goods and services, excise on tobacco and alcohol, and carbon taxes. Energy bills all have Vat at 9%, for example, which was dropped as households faced surging electricity bills in recent years.

The model developed by the Parliamentary Budget Office said about 16% of all tax receipts in the State in 2023, some €13.4bn, came from households paying indirect taxes.

“In line with previous research, we find the indirect tax system is most onerous on low-income households,” its researchers said.

The lowest group of households pay on average about €88.20 a week in indirect taxes on various goods and services. This is equivalent to 29.2% of the average household income in this group.

For the wealthiest cohort of households, they pay about €216 a week on average, but this only comes to 7.9% of their average income.

There was a smaller, but still significant, separation between a low-income household’s expenditure on indirect taxes each week versus the highest-income households.

The report said: “Firstly, highly taxed goods such as alcohol and tobacco make up a greater share of expenditure of low-income households — 9% of the expenditure of those in the bottom decile versus 6% of those in the top decile.

“Secondly, low-income households also spend a greater share of their expenditure on fuel and light, with taxes on electricity, home-heating oil and natural gas contributing to the differential.” 

Meanwhile, raising carbon tax from €48.50 a tonne to €100 a tonne will “add to the regressivity of the indirect tax system”, it added, but this could be recycled through the tax system to support those who need support.