The Houses of the Oireachtas Parliamentary Budget Office analyses the distributional effects of tax and welfare options proposed by government and opposition parties as part of Budget 2024

Read the full report here.

Annette Connolly, Director of the Parliamentary Budget Office said “the intention of this report is to foster constructive analysis and debate of realised and alternative positions for Irish fiscal policy as put forward by parliamentarians. The report carefully, and independently, examines proposals by government and opposition alike, and documents how these affect Irish households.”

The report finds that all the packages analysed were progressive, despite different policy positions taken. Some of the key findings from the report are:

1. Sinn Féin had the smallest tax and welfare package, followed by comparably sized packages from Labour and the government. The Social Democrats and People Before Profit had more costly packages.

• Sinn Féin had the least costly tax and welfare package, with a net cost of €3.6 billion after accounting for both additional spending and revenue raising measures. Labour (€3.7 billion) and the government (€4.2 billion) had broadly similarly size packages. The Social Democrats (€6.1 billion) and People Before Profit (€6.4 billion) had more costly packages.
• From a medium-term stability perspective, the share of each package dedicated to “core” or permanent net spending increases is particularly important. All packages, except for the People Before Profit package, availed of “non-core”, or temporary measures, to assist households with the cost-of-living. When examining net costs on a core basis alone, Sinn Fein also had the least costly package- at €2.2 billion. The government core package, at €2.4 billion, was of a very similar size. Labour’s core package was larger at €3.2 billion. The Social Democrats (€4.7 billion) and People Before Profit (€6.4 billion) had the largest core packages.

1. All packages, both government and opposition, increased core welfare payments which fostered income growth among low-income households.

• All packages increased core welfare rates. The government and Sinn Féin were most conservative in this regard. The government increased core welfare rates by €12 per week, while Sinn Féin increased disability payments by €20 per week, working-age payments by €15 per week and pension payments by €10 per week. The Social Democrats increased core welfare rates by €25 per week, Labour increased core welfare rates by €27.50 per week while People Before Profit opted to increase all core welfare payments to €300 per week.
• Labour opted to phase these rate increases in over the course of 2024, which understates the medium-term cost of the rate increase. Removing this phased element to Labour’s rate increase increases the net cost of the Labour package by €0.4 billion in 2024.
• The People Before Profit package made use of large revenue-raising measures to employer’s pay-related social insurance (PRSI) to finance their package. As such, €9.5 billion of net funds are transferred to households in their tax and welfare package, with revenue raising from employer PRSI reducing the net cost of the package to €6.4 billion. This is an important caveat in interpreting the large income changes for households under the People Before Profit package.
• The size of the core welfare package broadly matched the size of gains for low-income household under each package. The poorest ten per cent of households accrued income gains of 10.4% under the government’s package, 11.0% under Sinn Féin’s, 11.6% under Labour’s, 17.1% under the Social Democrats’ and 30.9% under People Before Profit’s.
• Removing non-core, or temporary cost-of-living measures, reduced gains for low-income households. On a permanent basis, low-income households gained by 5.0% under the government’s package, 7.7% under Sinn Fein’s, 9.6% under Labour’s, 12.0% under the Social Democrats’ and 30.9% under People Before Profit’s.

1. All opposition parties sought to increase the effective rate of income tax on high-income earners.

• All opposition parties put forward policies to increase the rate of tax on high-income earners. Individuals with earnings in excess of €100,000 per annum were classified as high-income earners across all opposition packages.
• Both Sinn Féin and Labour proposed a gradual withdrawal of tax credits past €100,000. Sinn Féin also proposed the introduction of a new tax, a Solidarity Tax of 3% on individual income in excess of €140,000 per annum. The Social Democrats proposed a new third rate of income tax of 43%, to be applied to incomes above €100,000 for singletons, with proportionate adjustments for couples. People Before Profit put forward a series of new income tax rates for those with earnings in excess of €100,000- with the first €50,000 subject to an income tax rate of 50%, the next €50,000 subject to 55%, the next €75,000 subject to 60% and all income in excess of €275,000 subject to an income tax rate of 65%.
• The richest ten per cent of households accrued income gains of 2.0% under the government’s package- when considering both permanent and temporary measures. The taxation strategies of opposition parties meant that income changes were smaller for these high-income households in opposition packages. The richest ten per cent of households accrued income gains of 0.7% under Labour’s package and 1.0% under the Social Democrats’. These progressive taxation options more than offset other expansionary measures in the Sinn Féin and People Before Profit packages, with income losses of 0.2% under the Sinn Féin package and 2.3% under the People Before Profit package for the richest ten per cent of households.

1. Behavioural response and broader macroeconomic effects are not analysed but are important caveats.

• The analysis in the report is static and households do not change their behaviour in response to policy changes. There are, however, a number of margins which could affect behaviour in the options proposed by opposition parties.
• The large increases in core welfare rates outlined by People Before Profit, Labour and the Social Democrats, could lead to a reduction in aggregate hours worked per week. This is more likely in cases where the rate increase across welfare schemes results in an income increase higher than forecast average wage growth.
• The very large increase in employer PRSI proposed by People Before Profit- particularly to increase employer’s PRSI to 19.75% (an increase of 8.7%) on salaries greater than €90,000 per annum- could have adverse effects on employment. If this is the case, the revenue raising potential of this measure will be unreliable and the measure could also negatively affect the macroeconomy.
• The higher effective rates of income tax on high-income earners proposed by opposition parties could also result in significant behavioural change among high-income earners. If this is the case, the revenue raising potential of these measures would be unreliable and would be significantly reduced.

Read more on the work carried out by the Parliamentary Budget Office  

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Notes to the Editor:

• The Parliamentary Budget Office provides independent and impartial information, analysis, and advice to the Houses of the Oireachtas.
• The report used the PBO’s EVE model and the ESRI’s SWITCH model to mode the cost and distributional effect of all tax and welfare packages.