Distributional impact of tax and welfare policies: Budget 2023
This QEC Special Article was subject to refereeing prior to publication. The authors are solely responsible for the content and the views expressed.
Budget 2023 was focused on providing relief to households experiencing reduced purchasing power due to rapid inflation, which is predicted to persist into 2023. In this Special Article we analyse the distributional impact of these reforms. Budget 2023 was unusual as many reforms were one-off measures specifically addressed at combatting cost of living pressures. Compared to a price-indexed 2022 baseline, Budget 2023 left households across the income distribution better off, with the lowest 10 per cent of households experiencing the largest gain; an increase of 1.4 per cent of disposable income. These income gains are driven by one-off measures, with the majority of permanent tax-benefit parameters either being frozen or increased below forecast inflation. Once inflation stabilises – and the need for further one-off measures diminishes – policymakers may wish to consider the adequacy of welfare payments in providing an appropriate standard of living at current market prices.