Average family income down €300 since austerity began

Average family income down €300 since austerity began

Tax has doubled in the last few years

The average family in Ireland has seen its disposable income fall by €300 per month and the amount of tax they pay doubled, according to pre-budget analysis released by Grant Thornton.

The research calculates the impact of the introduction of new taxes like the universal social charge and local property tax, and the reduction in child benefit on a range of income scenarios.

A family with one parent earning €40,000 has seen its tax bill increase by 125pc and a €300 per month decline in disposable income. Meanwhile, families with both parents earning €40,000, two children and a house valued at €200,000, have seen their tax bill rise 54pc and monthly disposable income fall by €511.

“Whilst five years of austerity was necessary to restore economic stability, it’s clear low to middle income earners have paid a heavier price in terms of the percentage increase in taxes they pay,” said Grant Thornton tax partner Peter Vale. “With disposable income sucked out of the economy to shore up the Government finances it is no surprise that consumer spending remains weak and the strength of any economic recovery uncertain.

“It’s also worth noting that the effective tax rate for well off families has risen close to 40pc, with high earning professionals likely seeing disposable income down a minimum of €10,000 since 2008.”

According to the research, the main driver of increased tax bills has been the introduction of the universal social charge in 2011 at a top marginal rate of 7pc for employees. The reduction in child benefit for the first and second child from €166 per child in 2008 to the current level of €130 has compounded the impact on disposable income from higher tax rates, and results in a loss of a further €864 per year for a family with two children.

The research also finds that in absolute euro terms a well-off family (primary income earner on €150,000, and partner on €40,000) is now €16,345 per year worse off, a decline of €1,362 per month in disposable income.

Grant Thornton is expecting Budget 2014 to include: an increase in PRSI for the self employed; a reduction in tax relief for pension contributions; a further increase in the Dirt rate to act as a disincentive to saving and encourage spending; targeted tax reductions linked to job creation; increases in excise duties; and possible increase in the capital gains tax rate or a change to the computational rules.

“Many of the tax raising measures for 2014 were introduced last year – such as the full year’s property tax and proposed changes to the tax deductibility of pension contributions – and I expect we will see some further tax raising measures introduced in Budget 2014,” said Vale. “Whilst there will be ongoing political debate about whether the total budget package should be €3.1bn or a lower amount, the conclusion is still the same: tax payers will dig deeper into their pockets in 2014 than they have in any year since the crisis started.”

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