The majority of the state’s households will not see any significant change in their financial situation as a result of the 2022 budget, the Economic and Social Research Institute (ESRI) said.
In its annual assessment of the government’s fiscal measures, the think tank said increasing social protection rates and tax brackets would compensate most households for rising prices.
However, he warned that below-inflation increases to the state pension and other benefits would worsen the situation for some working parents and retirees on low incomes.
Assuming an inflation rate of 2.2 percent for next year, ESRI calculated that average disposable income would increase by 0.2 percent due to direct tax measures contained in the budget, which included a € 5 increase in weekly pension and social protection rates. as well as increases in personal tax credits and brackets.
However, when indirect tax measures such as the carbon tax hike and the increase in excise duties on cigarettes are included, the increase in disposable income is canceled out and the disposable income of most households remains unchanged. .
Nonetheless, ESRI concluded that the budget increases were “large enough” to offset the impact of rising prices and would leave the overall poverty rate slightly lower.
While the above ‘indexation’ to inflation of income tax brackets and credits will also compensate high-income households for indirect tax increases, most of the universal payroll tax brackets and PRSI have not been changed, ”he said.
“This has the effect of reducing the after-tax purchasing power of low-income people who do not earn enough to pay income tax, although some of them will benefit from an increase in the minimum wage,” did he declare.
Below-inflation increases in the working family payment and state pension mean that some low-income working parents and retired couples who do not receive the fuel allowance will see their disposable incomes eroded by rising prices. , did he declare.
The research also found that although carbon tax and tobacco duty increases disproportionately affect low-income households, these also benefit from above-inflation increases in social benefits. base and supplements for people living alone or with dependents.
The ESRI assessment comes as new figures show inflation in the Irish economy topped a 13-year high of 3.7% last month due to soaring energy costs and transports.
Karina Doorley of ESRI said: “The changes announced in the 2022 budget will on average compensate households for the expected price growth and leave poverty slightly below that of an inflation-protected budget. However, some low-income working parents and retired couples will see real reductions in their payments, as will others if the price increases turn out to be larger than expected. ”
Her colleague Barra Roantree said the budget included well-targeted reforms with clear policy goals, such as above-inflation increases in social supplements for dependents and people living alone, which will reduce poverty slightly.
“However, it is not clear why the arguments for increasing income tax brackets and credit do not apply equally to PRSI and USC brackets or to basic social benefits, some of which are and others have exceeded the expected rate of inflation, “he said.
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