Single people on average PAYE salaries had little joy in this week’s budget package. This maintains a trend under this Government which – despite its rhetoric– has delivered little in terms of extra tax home pay to this group in its three budgets. Some earners with children and the self-employed have done better, but all the talk of abolishing the USC and transforming live for middle earners has been forgotten.
Here are the numbers – and the reasons – why this happened.
The numbers for 2019
Looking at Budget 2019 itself, the single PAYE employee on €55,000 got an extra €5 a week, due to changes in the income tax band and USC. Gains for lower paid single people were even lower – those on €25,000 to €35,000 gained €1 a week, as they don't earn enough to benefit from the increase in the level at which people become liable to the higher 40 per cent income tax rate.
The Government’s argument is that lower earners got significant relief in earlier budgets and now pay tax at relatively low rates. But the tiny gains at lower income levels are nonetheless notable.
Two other groups did better, due to the increase in two tax credits. The first benefits couples with a partner at home full-time looking after children – the home carer tax credit. This increased by €300, which is a straight cash gain to this group. The second, the earned income tax credit, benefits self-employed people and increased by €200.
These meant that the gain for the married PAYE earner on €55,000 –with one partner qualifying for the home carer credit – was €11 a week, more than twice that of their single counterpart. And the Budget 2019 lottery for middle earners was won by the married couple with one self-employed earner – and the other again qualifying for the home carer credit – who get €14 extra a week.
In cash terms for the year this breaks down as €252 for 2019 for the single earner, €552 for the married couple and €752 for the married couple with one self-employed worker. And just to note, the married couple with one earner on €55,000 who did not qualify for the home earner credit got the same as the single person.
The numbers in recent years
Budget 2019 is a continuation of a trend under this government, which has now had three budgets. In each of the three, the single PAYE employee – and the PAYE couple with no children – have got significantly less. Their gains in total from the last three budgets come to €821 per annum. For the one earner married couple who qualify for the home carer credit, the gains have amounted to €1,318 over three budgets. For the self-employed couple also qualifying for the home carer tax credit, the gains come to a more substantial €2,121 per year.
In the two earlier budgets the factors that drove the 2019 gains were the same – the increases in the two specific tax credits.
Let’s look back a bit further. Tax cuts started in 2015, following the big hikes during the crash. But the budgets of 2015 and 2016 took a somewhat different shape than the more recent ones.
The 2015 budget delivered similar gains to our three sample taxpayers on €55,0000, of around €600, or €11-12 a week, each. The couples with children did marginally better due to a small rise in child benefit.
In 2016, our single earner on €55,000 received €677 – well ahead of this budget. A rise in child benefit and an increase in the home carer’s credit brought the gains that year for the PAYE married couple who qualified for the home carer credit to €987. And if the earner in that couple was self-employed , the introduction of the earned income tax credit that year brought the gains to a sizeable €1,537.
Adding the sums together for the five budgets since the end of austerity, what do we see? Well, the single €55,000 earner is up €2,094, the married couple with kids and one earner are up €2,934 and the self-employed couple are the biggest gainers, up €4,284.
Why has this happened?
There are a few key reasons why this has happened. The first factor driving the overall small level of the tax package in Budget 2019 is that most of the cash went on higher spending. So the tax reduction part of the budget was worth just €365 million. For comparison, the 2016 budget, the one in recent years with the biggest tax package, saw tax cuts of €750 million. So while there was a lot more money available in this budget, the Government decided to direct the vast bulk of the resources to higher spending.
The small amount allocated to tax cuts meant that the “something for everyone in the audience” approach limited the gains for most and led to tiny increases for some. One other thing to understand is that wages are now rising and to ensure that a higher proportion of many people’s income is not taken as a result, tax credits and bands should be adjusted for this. So whether income tax has in fact been cut at all in the last couple of budgets in real terms is debatable.
Then there has been the decision to devote resources to the home carer and earned income credits. The case for these credits – which have driven the different level of gains – is based on the argument that those working at home and the self-employed should benefit from the same tax credit as PAYE employees, which is €1,650. Neither credit has yet reached this level.
But concentrating scarce resources on these gains obviously favours those who qualify for them as opposed to, for example, married couples with no children, or those with two earners at work. Whether this is policy, or is just the way budgets have evolved, is open to question. Certainly Fine Gael has made much of its support for families – and would have a traditional base among at least some of the the self-employed.
Is this fair?
Fairness in tax is an emotive subject. Because the basic gains in the last few years have been so small, the increase in the two credits has meant those who qualify have gained a lot more than the average. Were the overall gains greater, the disparity would be less.
The Government has also been causing its own problems here, relentlessly talking up its intentions to deliver higher take-home pay for the squeezed middle and particularly to address the low income level at which people become liable for the higher 40 per cent income tax rate.
The Taoiseach, Leo Varadkar, indicated in a recent letter to Fianna Fáil leader Micheál Martin that he wanted to see this income level increase by €3,000 over the next two budgets. This would have implied a €1,500 rise in this budget and the next one, but what was delivered this week was only half this. Again, when you factor in wage inflation, this is not really a policy change.
Politically, the Government is thus delivering little via tax reductions to younger people in particular, who are more likely to be single or, if they are a couple, to have no children. And this is one of the groups being hit hardest by rising rents and the rising cost of buying a home. House prices, and rents, are rapidly becoming affordable for those on average or above average incomes. Our €55,000 single earner would not afford a central Dublin rental on their own.
The Government will argue that it spending money on increasing housing supply. And it is trying to bring forward other schemes to address specific problems, helping more couples with childcare, for example, and assisting others to buy homes. But the talk of big gains for the squeezed middle from tax reductions and the abolition of the USC have been long forgotten.And €16 a week over the last three budgets is not a lot for our single €55,000 employee.
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