Not feeling any better off after many giveaway budgets? Here's why...

The Government has been presenting us with 'giveaway' budgets every year.

So why don't we feel better off?

Shouldn’t we be rolling in money after a decade of being told each budget puts  hundreds if not thousands of extra euros in our pockets every year?

Well, all is not quite what it seems when it comes to 'giveaway' budgets. It's a bit like a magician or illusionist using well-worn tricks to fool the audience (i.e. us!)

Several of the Government own most credible agencies tell us so if only we'd listen to them.

Here's a brief round up how we get short-changed every single year:

1. Giveaway budgets push up prices. So they are giving with one hand and taking with the other. Those cost of living handouts that are meant to help us cope with rising prices, are themselves driving up prices.

   The Irish Fiscal Advisory Council (Ifac), said: "Large budget packages in recent years have put money back in people’s pockets. But they have taken it away by pushing up prices. By breaching its rule, the Government is estimated to add €1,000 to the cost of a typical household’s yearly outgoings. This is probably an underestimate," IFAC said.

2. Stealth taxes claw back the gains. They give with one hand and take with the other. Electricity users will get €250 in energy credits, for example.

   Yet most of this is already being clawed back in just two levies slapped onto our bills.

   A Public Service Obligation (PSO) levy helps pay for the State’s renewable energy plan will add €42.50-a-year to our bills.

   Another one of €100 will go to pay for investments to our energy network.

   Carbon taxes will hike fuel costs when we top up our cars and home heating oil tanks (though not until May in the case of the latter).

   And there's a host of other levies stealthily driving up prices, including the banking levy which was extended for a further year in 2025.

3. The €1.4bn tax 'giveaway' is a myth. What the Government did was increase SOME elements of the tax system barely in line with inflation though far less than the wage increases that will make those increases redundant. The IFAC, ESRI and Revenue Commissioners have all indicated that the budget tax measures are broadly neutral.

   "The tax package is effectively neutral. That is, €1.4 billion of tax cuts cancel out what would be raised by people drifting into higher tax bands plus the carryover impact of measures introduced previously," said IFAC.

   
   
   
   

How indexation works

The little table below explains how much it would cost to link the whole tax system of bands, credits and allowances to inflation or wage increases, as many properly-run countries do.

They don’t bother with the political charade of repeatedly leaking and then announcing which tax credit is going up to garner column inches.

They just link them all automatically to rising prices as otherwise they’ll decline in value, increasing our taxes, thereby doing away with the budgetary hype and therefore column inches our politicos crave.

In Ireland, the Government changes nothing apart from a few eye-catching bands and credits.

We may gain from these but we also lose out overall as all the other bits and bobs in the system are eroded by inflation and wage increases.

The Revenue Commissioners’ table shows that it would cost over a billion just to link the main elements of the tax system to inflation.

This alone would gobble  up most of the €1.4bn we’ve been promised to date  in tax changes.

But we lose even more as our wages rise even faster.

If the tax system were linked to wage increases, as accountants suggest,  it would cost €3.6bn, far more than any projected budget giveaway this year.

Otherwise we lose out as more of our pay is dragged into higher tax bands and credits and allowances effectively shrink year after year.

So that’s why we don’t feel any better off despite the annual budgetary ‘bonanza’.