Social Impact Assessment of Tax and Welfare Changes in Budget 2016

Households with children are biggest beneficiaries from Budget 2016
Social Impact Assessment of tax and welfare changes published by Tánaiste

A new analysis of the Budget changes shows that households with children are the biggest beneficiaries from Budget 2016, in particular working lone parents.

The Social Impact Assessment of the welfare and income tax measures in the Budget was published today (Wednesday, 4 November 2015) by Tánaiste and Social Protection Minister Joan Burton, T.D. as she introduced the Second Stage of Social Welfare Bill 2015 in the Dáil.

The social welfare package in the Budget had four main aims:

to deliver welfare improvements for pensioners aged 66 and over;
to strengthen supports for all families with children;
to enhance incentives for employment and to make work pay; and
to provide targeted assistance for vulnerable groups, such as carers and people with disabilities.

The main welfare measures included the payment of a 75% Christmas Bonus to all long-term social welfare recipients, a €3 weekly rate increase for pensioners aged 66 and over, the €5 increase in Child Benefit from €135 to €140 per month per child, the increase in the Carer’s Support Grant payment by €325 to €1,700 per annum, and the increase in the Family Income Supplement income thresholds by €5 for families with one child and €10 for families with two or more children.

The Social Welfare Bill will give effect from January to the measures that require legislation, such as the Child Benefit, pension and Carer’s Support Grant increases. Other measures, such as the Christmas Bonus, do not require primary legislation and will be introduced by way of regulations.

In addition to welfare measures, there were important changes to the tax system in Budget 2016, most notably the reductions in the USC and improvements in PRSI for low-income workers. There was also increased funding for the Early Childhood Care and Education scheme (ECCE) and, from January 1st, the National Minimum Wage will increase to €9.15 per hour.

The Department of Social Protection has carried out a Social Impact Assessment of the main tax and social welfare measures contained in Budget 2016, incorporating all of the above elements. This is based on the tax/welfare microsimulation model SWITCH developed by the Economic and Social Research Institute. Social impact assessment is an evidence-based methodology which estimates the likely effects of policies on household incomes, families, poverty and incentives to employment.

The Tánaiste said: “The purpose of Budget 2016 was to improve the lives and living standards of every family in the country. The Social Impact Assessment carried out by the Department shows that the average household gain is €14 per week as a result of Budget 2016. Households with children are the biggest beneficiaries from the Budget as a whole. The analysis also clearly demonstrates that the lowest-income households will benefit most from the welfare changes.”

The Social Impact Assessment found:
· Average household incomes increase by 1.6 per cent (€14 per week) as a result of Budget 2016.
· Importantly, there are higher than average gains for the bottom two quintiles, while the smallest gain is in the top quintile.
· Social welfare measures primarily benefit the bottom two quintiles, while income tax measures benefit middle and higher income quintiles.

The analysis also shows that social transfers continue to perform strongly in reducing poverty. Ireland continues to have one of the strongest social transfer systems in the EU, as the Government prioritised the protection of the system throughout the worst of the economic crisis.

Elsewhere, the analysis shows:

· Generally, households with children gain more than those without, reflecting the child-specific measures in Budget 2016.

· Child expenditure, though universal, favours lower income households.

· The biggest beneficiaries are lone parents, dual and non-earning couples with children, with an average gain of 2%.

· Non-earning lone parents and single earning couples with children fare above average, gaining around 1.8%.

Impact on Work Incentives
Looking at the overall distribution of replacement rates, the model shows that the majority of people at work (86%) or unemployed and receiving a jobseeker payment (84%) have strong financial incentives to work, as they gain more from employment.

The Social Impact Assessment of the welfare and income tax measures in Budget 2016 is available to view on .