Written answers

Thursday, 31 March 2022

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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222. To ask the Minister for Finance to provide the change in household disposable income by income decile in percentage terms (details supplied), adjusted for rates of inflation of 2.2% and 6.7%, in tabular form. [17193/22]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The table to which the Deputy refers, which was contained within the Distributional Analysis of Budget 2022 published by the Departments of Finance and Public Expenditure and Reform, shows the changes in weekly equivalised household disposable income as a result of the Budget’s tax and welfare measures. The analysis is conducted using SWITCH, the ESRI’s tax-benefit microsimulation model, and ITSim – an indirect tax microsimulation model developed jointly by the Department of Finance and the ESRI. As with previous years, the Departments' analysis estimates the changes in disposable income compared purely to a pre-Budget position and does not, therefore, adjust for projected inflation.

The ESRI’s own distributional analysis, published on 14 October 2021, does provide an analysis of the Budget’s tax and welfare measures against an inflation-adjusted estimate of disposable incomes. The ESRI’s October analysis is based upon a projected rate of inflation of 2.2 per cent in 2022 and is available at www.esri.ie/news/budget-2022-measures-compensate-most-households-for-rising-prices.

The ESRI has not updated this analysis to reflect revised projections for inflation in 2022 and I understand that this presents a number of technical and analytical challenges. However, the ESRI recently published a box in its Quarterly Economic Commentary which examines the distributional effects of inflation through a comparison with projected changes in income growth broken down into contributory components across the income distribution. This analysis has been prepared using inflation rates from January 2021 to January 2022, reflecting an annualised rate of inflation of 5.2 per cent.

It is evident from the QEC analysis that much of the impact of inflation is expected to be mitigated by income growth, which is projected to stand at 4.8 per cent on average. The analysis finds that earnings growth is the largest single contributor to disposable income growth, but that Budget 2022 is the next largest contributor to household income growth, with larger effects for low-income and elderly households. I also note that the QEC finds that lowest income households benefit most from the Government’s overall package of policy changes, namely the tax and welfare policy changes in Budget 2022, the February Cost of Living package, and the March reduction in excise duty.


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