Business

Tax changes in last budget helped boost lower paid worker incomes

Living Wage Technical Group revises down the minimum hourly pay required for a full-time worker without dependents to afford basic goods and services

The Government is committed to introducing a national living wage by January 2026 through incremental increases in the minimum wage, as recommended by the Low Pay Commission, but is said to be considering a deferral to limit the rise in business costs. Photograph: iStock
The Government is committed to introducing a national living wage by January 2026 through incremental increases in the minimum wage, as recommended by the Low Pay Commission, but is said to be considering a deferral to limit the rise in business costs. Photograph: iStock
Eoin Burke-Kennedy
Mon Sept 23 2024 - 06:00

Tax changes in the last budget, particularly the rent tax credit, has led to a marginal reduction in the living wage.

The Living Wage Technical Group (LWTG) said it had revised down the minimum hourly pay required for a full-time worker (without dependents) to afford the basic goods and services to €14.75. It said it based the calculation on “the real costs faced by employees in Ireland” determined by changes “in these living costs and income taxes”.

The Government is committed to introducing a national living wage by January 2026 through incremental increases in the minimum wage, as recommended by the Low Pay Commission, but is said to be considering a deferral to limit the rise in business costs.

Over the past year the LWTG said living costs have increased for eight areas of expenditure while they have decreased for seven.

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The largest changes were increases in costs for education (+6.6 per cent), housing (+6.2 per cent) and car insurance (+4.5 per cent) and decreases in household energy costs (-16.6 per cent), health costs (-4.8 per cent) and the cost of household services (-4 per cent).

The LWTG said food costs rose a further 1.5 per cent, on top of a 21 per cent increase in the previous year, while the largest cost increase in cash terms was rent, which rose by €12.28 per week to reach €210.60 per week.

However, these increases were counteracted by the Government’s Budget 2024 cost-of-living package. Tax changes in the last budget, particularly the rent tax credit, played an important role by increasing the net incomes of lower paid workers.

The combined amount of income tax, USC (universal social charge) and PRSI that would be paid by a living wage worker reduced from €71.58 per week to €61.16 per week, a reduction of €10.42, mostly driven by the rent tax credit, the group said.

“The latest calculation of a living wage is nearly identical to last year despite higher costs in some areas like food and rent because of a combination of lower energy costs and tax changes made in the last budget,” said Robert Thornton, research manager with the Vincentian MESL Research Centre and a member of the LWTG.

Nonetheless, there is still a significant gap of over €2 between the evidence-based living wage of €14.75 and the current national minimum wage of €12.70, he said.

Separately in a pre-budget submission Social Justice Ireland called for a minimum €25 increase in core weekly rates of social welfare and an increase of €50 in the monthly child benefit payment, both aimed at reducing the incidence of child poverty.

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Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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