Oireachtas Joint and Select Committees

Wednesday, 11 May 2022

Committee on Budgetary Oversight

Recent Cost-of-Living Measures: Discussion

Mr. Brendan O'Connor:

It is an excellent question. Where do I start? The wage data in Ireland for the last year or two are borderline impossible to interpret. When we get down to averages, we had 600,000 people on the pandemic unemployment payment, PUP, in 2020 and they are all, comparatively speaking, lower-paid, part-time workers. Therefore, we get this massive mechanical shoot-up in the average wage because we are dividing the wages of those who are still in work, which is comparatively higher, by a much smaller number. It is very hard to interpret. However, although they are not the official data on wages, which, as I said, are completely messed up, some data have been published by the Central Statistics Office, CSO, which looked at tax records for people who were in jobs in subsequent quarters, and it is almost controlling for everyone who was on PUP and similar payments. As of the fourth quarter of last year, quarter on quarter, from the third quarter of last year, on a like-for-like basis, wage growth was of the order of 6%. Therefore, in Ireland, for those within work over the past year or two, wage growth was actually quite strong.

That probably explains what we have seen on the income tax side, given it has been difficult to explain what has gone on with income tax in Ireland, where there was near double-digit growth last year. Is that because of people coming back into work who lost employment because of the pandemic, or is it because of wage growth for people who are working and have continued to work? There is no easy answer to that. However, if we look at what happened in 2020, when we have this huge fall in employment but income tax only fell by a tiny amount, it probably speaks to those who left employment and were supported by the PUP being comparatively lower paid and, therefore, paying comparatively less tax. Therefore, it would stand to reason that when they return to work, there would not be a huge tax dividend, which then probably speaks to the fact that if income tax in particular shot up last year, it must be to do with wage growth within the economy.

In my view, even though the national official statistics do no not show it, there is evidence from Revenue data and the like that there was quite strong wage growth in the economy. Of course, at the same time-----