Dr. Claire Keane:

It is important to note that, unfortunately, all this research is based on Central Statistics Office, CSO, data from 2021. We can see that Ireland, until that point, was a very good news story. While pretty much every other OECD country saw a rise in income inequality in the past few decades, we have bucked that trend and seen continuous declines in income inequality. The most recent data, from 2021, show that we are now going in the other direction. That is driven by a drop in income among the lowest decile and right up to the 50th percentile, or in all of the lower income groups. It is important to note that what is driving that is a drop in work hours and in months of full-time work. There is, therefore, a drop in employment earnings. We need to be careful and dig deeper and follow up with 2022 data on what is driving that. Is that just an overhang from Covid-19? We know that as regards unemployment, or employment related to Covid-19, the shocks that happened were really felt by the lower part of the income distribution, the people in jobs in retail and restaurants and all of the sorts of sectors that were shut. We need to be very careful and keep an eye on that to see if it is a continuing trend or a hangover from Covid-19. We are talking about 2021 so it could just be that the recovery in those sectors is taking a longer time.

We know the rise in inequality and drop in income have been driven by falls in employment earnings. How has the welfare system responded to this? In the most recent budget, particularly when faced with coming out of Covid-19 and the cost-of-living measures, the one-off measures we saw, such as the additional social welfare payments etc., did do a good job and were progressive. They supported the lower end of the income distribution and, more so, they were well targeted. It is also important to note that if we think about the tax benefits system as a whole, outside of those one-off measures, we do not see social welfare rates and tax bands and tax credits rising in line with inflation. If that happens, what is generally seen is that inequality will worsen because for those at the lower end of the income distribution, their income will not keep pace with other incomes. It is important that we do not obsess too much about that fall in income because we are not fully sure if it is just post Covid-19. However, it is important we keep an eye on it, monitor it going forward and see what happens next year as well.