Most Middle-Income Earners Won't Benefit

The Taoiseach is making a big play for ‘middle Ireland’.  In an interview with the Irish Times he stated:

‘. . . our basis for participation in this Government is that middle Ireland gets looked after, and that’s looking after working people. . . So we’d be very clear in this Government that we want income taxes reduced.’

To this end, Fine Gael is proposing:

• A major tax cut: an increase in the standard rate tax band of €4,000 – from €40,000 to €44,000 for a single person. Everyone earning above €44,000 would get €800.  Anyone earning below €40,000 would get nothing.

• A minor tax cut: an increase in personal tax credits of €200.  This would mean an additional €3.86 per week for all workers in the tax net.

Fine Gael is claiming these cuts will bring considerable benefit to middle income earners: €1,000.  However:

• Most workers will get less than €4 per week as they won’t benefit from the increase in the standard rate tax band.

• The majority of middle-income earners will not receive the major tax cut and will have to content themselves with less than €4 per week as well.

Let’s look at the evidence that most middle-income earners will not be the primary beneficiaries of Fine Gael’s tax cuts.

Survey of Income and Living Conditions (SILC)

SILC measures all income – from employment and social transfers –broken down into deciles.  If we take the 5^th and 6^th deciles as ‘the middle’ we find:

The average weekly income from employment for households is €718 – or an annualised €37,400; below the top rate tax band which is the entry level to Fine Gael’s major tax cut (i.e. €40,000).  A problem with SILC data, however, is that it is based on household income.  So we don’t know how many people in the household are in-work or are working full-time or part-time.  So this €718 could be earned more than one worker.

It should be noted that in the higher 7^th decile, weekly employee income is approximately €1,100.  However, if two persons work in this household, they, too, may be well below the €40,000 benchmark.

So while we can’t estimate how much an individual earns from the SILC data, household market income doesn’t suggest that this particular ‘middle’ would benefit from Fine Gael major tax cuts.

CSO Data

The CSO’s Administrative Data Sources shows that in 2021, median earning was €644.55 – or an annualised €33,600.  We can project earnings in 2023 by applying the 3.3 wage increase last year and the Government’s projected 5.6 percent wage increase this year.  Median is an important metric as it represents that point at which 50 percent above and 50 percent earn below.

• In 2023 we can project median earnings to be a weekly €703 – or an annualised €36,700.

That ‘middle’ income earner is well below the top rate of tax; well below Fine Gael’s main tax cut threshold. 

The CSO also produces the Earnings Hours and Employment Costs Quarterly Survey.  This is the main database for earnings.  What does this tell us?

In 2022 average weekly earnings was €881.   Again, if we apply the Government’s projected wage increase of 5.6 percent this year, we find:    

• In 2023 the estimated average weekly earnings will be €931 – or €48,500 annually.

However, this is the average and doesn’t tell us what the middle, or median, income is.  The Administrative Data source suggests that the median is 20 percent below the average. If so:

• In 2023 the estimated median weekly earnings will be €745 – or an annual €38,800.

Again, this ‘middle earner’ won’t benefit from Fine Gael’s main tax cut.

Revenue Commissioner Data

The Revenue Commissioner provides detailed data on the range of income from employees.  But there are problems:  first, the latest data is 2019; second, a high number of low earners are actually pensioners not in employment (though some would be); third, about a quarter of the data comes from the combined income of ‘married couples’ so we don’t know what they individually.  So we should treat the following as indicative. 

In 2019, the middle cohort (the middle third) earned between €16,000 and €37,400.  The median income was €25,800.

If we adjust the income range by the increase in wages up to 2023 (20 percent), we find that the middle cohort earned between €19,200 and €44,900.  The median income is estimated to be €31,200.

This shows that while most of the upper third of income earners would benefit from Fine Gael’s main tax cut, most of the middle third wouldn’t.

If we could adjust the Revenue Commissioners table by removing pensioners and disaggregating married couples’ joint income, we’d probably find that range of income for the middle third and the median income to be higher.  But it wouldn’t change the main story-line; namely, that the majority of middle-income earners wouldn’t benefit from Fine Gael’s main tax cut.

* * *

While each data source has its own challenges, they tell a similar story:  namely, that most employees, and most middle-income employees, would get less than €4 year per week from Fine Gael’s tax cut proposals.

Even if one didn’t care about the impact of such tax cuts on inequality, the ability to fund European-level of services, the resources to fund in-work benefits (which would really benefit middle-income earners), on economic and social investment – even if you didn’t care about any of this, you would still have to conclude that Fine Gael’s tax cuts for most workers is pretty minimal.  The big winners would be higher earners – those that have a better capacity to absorb the current cost-of-living crisis.

We need a better, more informed debate on ‘middle Ireland’.

 

 

 

Comments

[Jerry Melinn]

It seems US, UK and Irish governments all want to give tax cuts that benefit the wealthier citizens and corporations. It's just that Fine Gael are able to disguise it as benefitting middle-income workers. An 'informed debate' is needed but I doubt the mainstream media here will facilitate it.