ESRI: Bulk of tax burden carried by middle-income earners

Monday 28 July 2014 23.34
In other EU countries the gap between the richest and poorest increased significantly
In other EU countries the gap between the richest and poorest increased significantly

Research by the Economic and Social Research Institute suggests the bulk of the burden of tax increases over the past five years has been carried by those on middle incomes.

The research published this morning shows tax rises and spending cuts in recent years have been linked to the policy of successive governments to protect those on social welfare.

According to the ESRI, the policy of protecting those who are dependent on the social welfare system has contributed to an outcome where inequality in the distribution of income has actually fallen over the last five years.

It says maintaining the social welfare system in the face of a massive increase in numbers depending on it meant that the need for increased taxes and cuts elsewhere in the economy was greatly increased.

Ireland, it says, differed from other EU countries where the gap between the richest and poorest increased significantly as a result of the crisis.

The ESRI said that because of the policy decisions taken here and because of a large reduction in the number of high earners, the bulk of the burden of tax increases had to be carried by those on middle incomes.

Economist John Fitzgerald said that over the last few years, the people who were worse off were those who lost jobs, but the rest of the population "took a hit" to pay for welfare supports.

He said that the average income has fallen by 8% from the peak to today, while the welfare bill has risen from 13% of income before the crisis to 20% now.

Speaking on RTÉ's Morning Ireland, Mr Fitzgerald also cited research which showed that many people on reasonable incomes are in financial distress due to excessive mortgage repayments.

He said: "With three times as many people unemployed, they weren't paying tax and on the top end you had a dramatic reduction in the numbers of really high earners, which left the rest of the population who were earning to pay taxes.

"The people who did worse obviously were the people who lost jobs, and the rest of the population had to take a hit to pay the welfare payments".

Taoiseach Enda Kenny said the Government recognises the pressure that middle income families have had to endure in recent years.

He said for this reason the Coalition would try to focus its efforts to give something back to those who had made sacrifices during the downturn.

Mr Kenny said any flexibility that was available in forthcoming Budgets would be aimed at the "squeezed middle". 

He said the overall Government focus was to manage public finances and get as many people back to work as possible.