New research published today (8 December) examines the impact of the tax and welfare changes introduced in Budget 2018. The analysis focuses on the impact of policy relative to a “distributionally neutral” budget i.e., one which would see incomes rise by the same percentage at all income levels. A budget which indexed tax credits, tax bands and welfare payment rates in line with expected wage growth (about 3 per cent in 2018) would lead to this neutral outcome, with all incomes rising by 3 per cent.
Analysis by ESRI researchers shows that, compared with a “distributionally neutral” budget, Budget 2018 led to small losses for all income groups. The average loss was 0.4 per cent, compared to a neutral budget. Somewhat greater losses were found for the lowest income groups – about 0.6 per cent, while losses for the top 20 per cent of the income distribution were smaller, at about 0.2 per cent. These changes are small compared to the losses imposed by austerity budgets, and the gains from budgets during the boom years.
Analysis also shows that small losses are found for all family types, again relative to our distributionally neutral benchmark. About one-third of families have losses close to the average loss of 0.4 per cent. Some four out of ten families – mainly single persons in employment – have smaller losses of 0.1 to 0.2 per cent. Somewhat greater losses, of 0.6 to 0.7 per cent, are experienced by single earner couples with children, retired couples and a group including those who are not in the labour force (mainly students and those with a disability).
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