Policy Brief: Inequality in Ireland 2023

On Tuesday, 20 June, the Think-tank for Action on Social Change launched its latest report on the state of inequality in Ireland. TASC is an independent think-tank that aims to address inequality and sustain democracy by turning analysis into action.

Income Inequality

According to the TASC report, income inequality fell in Ireland from 1987. The economic development and employment growth of the Celtic Tiger helped in this reduction but with the recession of 2008, income inequality rose until 2012. The report also shows that market income inequality, which is income before taxes and transfers, is more or less the same as it was in 1987 showing that it was been the welfare state that has driven Ireland’s improved distributional performance. In Ireland, taxes and transfers have led to income inequality being reduced by 40% compared to the OECD average of 25%.

The report also analyses the changes in income share during the Pandemic. It shows that all groups except for the top earners received a lower share of national income in 2021 compared to 2020. The top 10% increased their share of national income by 1%.

Distribution and Inflation

The report examines how inflation has impacted low-income houses and renters the most. Deciles one and two, the lowest earners, have experienced the largest increases in prices. The inflation rate for these groups has been around 19%. This is compared to the overall inflation rate of 17%. The top three deciles have experienced the lowest inflation rate.

The biggest contributor to inflation has been energy, which has increased by 41.2% in 2022. Energy is a necessity, and all households consume it and thus it comprises a larger share of low-income households’ budgets due to their lower incomes. A lower standard of accommodation also contributes to their energy use.

The report also details how outright owners of homes and mortgage holders have both experienced a similar level of inflation. Renters have experienced a higher level of inflation, whether they be renting from a local authority or a private owner. Those renting from local authorities have also been hit more by energy inflation.

The report also emphasises that although the income distribution has become more equal, that does not mean that households are not experiencing hardships. The report looks at the deprivation rate in Ireland to give a fuller picture. The deprivation rate is the share of the population who cannot afford two or more basic items considered to be the norm for other households in society.

The onset of the Celtic Tiger led to a sharp fall in deprivation but during the financial crisis of 2008, it increased sharply. It then fell once the economy recovered. Over the past year, the deprivation rate has increased sharply again.

Recommendations

The report makes a number of recommendations that could help reduce income inequality and help households in Ireland. One of the recommendations is to maintain or increase revenue. The report recognises that there is a temptation to reduce taxes but that this will have an inflationary impact on the economy. Taxation is an effective way of reducing inequality and reducing taxation would reduce its redistributive impact.

The report also argues that since inflationary pressures still exist in the economy, increasing the social wage would be the best approach to addressing income inequality. The report specifically talks about how public investment in Early Years care would have a big impact. Despite increased investment over the past few years, the cost of Early Years care remains very high. These high costs act as a barrier to employment, especially for women, which leads to a dispersion of market income. The report recommends an increase in investment of 0.1% of national income, thus bringing total Early Years spending to 1% of national income.

If you have any questions regarding the report or would like to engage with us, please contact our policy team.