We will crush your dreams...and here's €1.88 for your trouble
While the relief given to low-income earners by the Government under the Universal Social Charge is welcome, any gains will likely be swallowed up by other measures introduced in this week's Budget. By Michael Taft.
Act two of the budget: increased taxation on capital and property amounts to a quarter of the cuts in social protection alone (never mind education and health). They take €15 million off those holding on to legacy property tax reliefs (out of a total of €435 million they gain in relief). Lone parents are going to be hit for €112 million. The scales are not very balanced.
This is a budget that will destroy up to 20,000 jobs. This is a budget that raises over €600 million in a regressive VAT rise. And €160 million in a flat-rate household charge. And large families could lose up to €50 per month and more in real income supports. Strange, hard world.
We are, if the ESRI and the EU Commission projections hold, heading back into a domestic recession with falling consumer spending, falling employment, rising unemployment and falling wages and incomes. And this budget, on the Government’s own estimate, will cut nearly €2 billion out of growth. Curious, curious.
But...but.. the Government has given relief for low-income earners under the Universal Social Charge. The exemption threshold, currently €4,000, has been raised to €10,000. Let’s do some numbers.
This is the latest income distribution I could find.
This is an extrapolation to identify the earners in the €4,000 to €10,000 cohort – those part-timers who will benefit from raising the USC threshold income. Previously, they were hit with a 2% charge. Now they won’t be. What shouldn’t have been done last year with the introduction of the USC has been reversed. This is good.
On average what does it mean? €1.88 per week. Small – but for people taking home this amount, nothing to sniff at. The maximum benefit – for those earning €10,000 – will be €3.84 per week. The problem is that, for a significant number of people, the remainder of the budget takes this relief away and turns many part-timers into net losers.
A big culprit is the reduced social protection payment for part-time workers. This was done by reducing payment entitlement to a five-day week rather than the current six-day week where a person is working for part of a week. While there are a number of conditions, the basic premise is that if your working week is reduced to two days, you got four days of Jobseekers’ Benefit (that is the 6-day rule). This has been reduced to a five-day rule. The difference in take-home income is not insignificant:
- Previous: Working two days, receiving four day JS Benefit: €125.33 weekly
- New: Working two day, receive three days JS Benefit: €112.80 weekly
For part-timers, their benefit will be cut by €12.53 per week – swallowing up the average €1.88 gain. In a similar fashion, the reduction in the earnings disregard for Lone Parents will operate to claw-back the USC gain.
We must remember that not everyone earning below €10,000 receives part-time social protection payment; nor does everyone receiving such payment earn below €10,000. So there is only a partial overlap. But there are over 132,000 part-time and casual workers on the Live Register – a substantial number receiving the benefit of the USC cut will find it immediately taken away by the social protection cut. One clue: the USC cut will cost the Government €47 million, but they will claw back €27 million in reduced social protection payments to part-timers.
However, this isn’t the only ‘claw-back’ people will face: there is the VAT rise, the Household Charge and, as we saw with Child Benefit, our old friend inflation. For many, the USC cut will melt away before it even hits their pocket - like a snowflake hitting warm tarmac.
This is not to dismiss the USC cut. However, the entire thrust of the budget is to put a disproportionate amount of the burden of the fiscal adjustments on the shoulders of the low-paid, social protection recipients, and part-timers. Some will gain; some will gain but not by nearly as much as the headline rate suggests; some will lost out slightly; some will lose out significantly.
And in the context of a jobs-destroying budget with a domestic economy heading south and unemployment heading north (and guess who bears the brunt of this), the USC cut can become almost tokenistic. If Government backbenchers expect the part-time masses to welcome the budget on the basis of this cut, they will be disappointed.
To give back €2 a week (much less after all these claw-backs) may have been considered ‘politically’ smart when it was on the drawing board. But it only serves to sugar-coat a bitter pill; and with a very thin coat at that. {jathumbnailoff}
Image top: Leeds Museums and Galleries.