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Lower income households disproportionately hit by effects of indirect taxes

By February 21, 2024No Comments

Lower income households are disproportionately hit by the effects of indirect taxes like VAT and carbon taxes when compared to those with higher incomes, a new analysis has found.

The findings from the Parliamentary Budget Office (PBO) report show that on average Irish households pay €151 per week in indirect taxes.

Overall, this amounts to 13% of household spending or 12.6% of household income, the PBO found.

Low-income households, classified as the poorest 10%, pay an average of €88 per week in indirect taxes, equivalent on average to 14.3% of household spending or 29.2% of household income.

But in the case of high-income households, considered to be the richest 10%, the average amount of money spent each week on indirect taxes is €216.

Because their household income is higher, this makes up around 10.5% of their household spending on average and accounts for just 7.9% of their income.

The study also found that VAT is the largest and most regressive element of the indirect tax system.

Irish households pay €113 on average per week to it, equivalent to 8.7% of household income or 8.9% of household spending.

Those with lower incomes pay €58 a week in VAT, which equates to 19.4% of their income and 9.5% of their spend.

Higher income households, on the other hand, pay €159 a week in VAT on average.

That represents 5.8% of their income or 7.7% of their outgoings.

The research also explored the planned future increases in the carbon tax, which is due to rise each year until it reaches €100 a tonne by 2030.

In the report, the authors simulate the effect that a €100 per tonne carbon tax would have on Irish households had it been in place last year.

They found it would lead to the poorest households facing a €4.60 increase in indirect taxes.

That would represent 1.5% of their household income on average.

That compares to a €11.20 a week increase in indirect taxes for the richest households, which amounts to just 0.4% of their income.

The study also found that indirect taxes are particularly burdensome for low-income households because they spend more of the outgoings on energy products.

The higher relative spending by low-income households on highly taxed products such as alcohol and tobacco also contribute to the regressive nature of indirect taxes, the report also claimed.

Article Source – Lower income households disproportionately hit by effects of indirect taxes – RTE

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