DISTRIBUTIONAL IMPACT OF TAX AND WELFARE POLICIES: BUDGET 2018. Quarterly Economic Commentary Special Article, WINTER 2017.

Callan, Tim and Bercholz, Maxime and Doorley, Karina and Keane, Claire and Regan, Mark and Savage, Michael and Walsh, John R. (2017) DISTRIBUTIONAL IMPACT OF TAX AND WELFARE POLICIES: BUDGET 2018. Quarterly Economic Commentary Special Article, WINTER 2017. [Working Paper]

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Abstract

This article examines the impact of the tax and welfare changes introduced in Budget 2018 on the distribution of income across households. The analysis uses SWITCH, the ESRI tax-benefit model, which is based on data gathered by the CSO for almost 8,000 households in its nationally representative Survey of Income and Living Conditions for 2013 and 2014, calibrated to represent the 2018 population. The impact of policy is measured against a distributionally neutral benchmark – a budget which would index the money value of tax credits and welfare payment rates in line with expected growth in wages of about 3.1 per cent. Key findings include the fact that the overall impact of policy was to reduce incomes somewhat below the levels which would have obtained if tax and welfare parameters were simply indexed in line with wage growth. The average loss across all households is close to 0.4 per cent. At low income levels, these reductions, relative to a wage-indexed policy, were in the region of 0.6 per cent; at high income levels, the reductions were in the region of 0.2 per cent. Analysis at family unit level reveals losses of close to 0.4 per cent, compared to a neutral benchmark, for most family types. Losses are slightly lower (less than 0.2 per cent) for single employees without children, and for double earner couples without children. Somewhat greater losses (0.6 per cent) are identified for retired couples, and a family type category which includes those who are outside the labour force – mainly in education, ill or disabled.

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