The document summarizes the distributional, poverty, and inequality impacts of Budget 2022 in Ireland as analyzed by the ESRI using the SWITCH tax-benefit microsimulation model. Key findings include: 1) On average, direct tax and welfare measures in Budget 2022 offset inflation so households are not worse off in real terms, with small gains for low- and high-income households. 2) Indirect tax increases like carbon tax affect low-income households most but are more than offset by direct measures for most groups. 3) Poverty measures see small reductions while income inequality is unchanged. 4) Specific household types like lone parents and retired couples see small income losses on average.

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ESRI Post-Budget Briefing
Distributional, poverty and inequality
impacts
DATE
15th October 2021
Tax, Welfare & Pensions
team
Michael Doolan
Karina Doorley
Theano Kakoulidou
Claire Keane
Seamus O’Malley
Dora Tuda
Mark Regan
Barra Roantree

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What is the distributional impact of Budget 2022?
For what population?
• Employment calibrated to latest available PUP
(October 2021) and EWSS (Aug 2021) statistics
• Income inflated to 2022 using forecast price
growth of 2.2% (Department of Finance)

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What is the distributional impact of Budget 2022?
Compared to what?
• An 2021 tax and welfare system that is adjusted
for forecast inflation
• Pre-announced decrease in PUP rates & expiry
of reduced VAT rate in baseline

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What is the distributional impact of Budget 2022?
We compare Budget 2022 to a set of policies (2021
and pre-announced for 2022) that would have a
distributionally neutral outcome for the 2022
population
➢ Winners and losers in real terms

5. 5
Distributional effect of Budget 2022

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Budget 2022 – main measures analysed using SWITCH
Pre-announced policies in the baseline
PUP rates ↓; temporary VAT cut expiry
Income tax
Bands/credits indexed for workers; employer PRSI threshold increased
Welfare
Personal rate of benefits increased with proportional increases for qualified adults and children;
Working Families Payment increase; Living Alone Allowance increase; Fuel Allowance payment
and threshold increased; Carer’s Allowance disregard increase; Disability Allowance earnings
limit increased
Non-cash benefits
National Childcare Scheme: Universal Childcare Subsidy extended to u-15s; hours of (pre-)school
no longer deducted from eligible hours, income thresholds and rates of payment frozen
Indirect tax
Tobacco excise + 50c; carbon tax + 7.50/tonne
All policy changes modelled as fully in place with no behavioural impact

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Compared to a price-adjusted budget, direct tax and benefit
measures will result in small gains for households
0
0.1
0.2
0.3
0.4
0.5
0.6
Decile
1
Decile
2
Decile
3
Decile
4
Decile
5
Decile
6
Decile
7
Decile
8
Decile
9
Decile
10
All
%
of
disposable
income
Direct tax and welfare
Direct tax and welfare

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Indirect tax measures affect low income households most
-0.40
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
Decile 1Decile 2Decile 3Decile 4Decile 5Decile 6Decile 7Decile 8Decile 9 Decile
10
All
%
of
disposable
income
Indirect Tax
Indirect tax

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Reform to the NCS has very small effects
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
Decile
1
Decile
2
Decile
3
Decile
4
Decile
5
Decile
6
Decile
7
Decile
8
Decile
9
Decile
10
All
%
of
disposable
income
National childcare scheme
National childcare scheme

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Compared to a price adjusted-budget, the overall
impact of the budget on household income is small
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
Decile
1
Decile
2
Decile
3
Decile
4
Decile
5
Decile
6
Decile
7
Decile
8
Decile
9
Decile
10
All
%
of
disposable
income
Direct tax and welfare National childcare scheme Indirect tax Total

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Small income losses expected for lone parents and
retired couples
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
Single
working age
w/o children
Lone parent Working-age
couple w/o
children
Working-age
couple with
children
Single
retirement
age
Retirement
age couple
All
%
of
disposable
income
Direct tax and welfare National childcare scheme Indirect tax Total

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Men in low income households gain slightly more than women
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 All
Total (direct tax, welfare & NCS)
Men Women

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No change to income inequality, small reductions in
poverty measures
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
Gini AROP AROP Adult AROP elderly AROP child
Percentage
point
change
Change compared to a price-adjusted budget

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Conclusion

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Conclusions
• On average, direct tax and welfare budgetary measures
are keeping pace with forecast inflation
• benefit low-income and high-income households most
although magnitudes are small
• Slight fall in at-risk-of-poverty rates
• Indirect tax measures affect low income households
most
• More than offset by direct tax and welfare measures for
most groups
• Uncertainty around inflation forecast and wage growth
next year – estimated gains could be eroded

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Thank you!
Questions?