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Ireland's political and cultural magazine
— June – July 2013
T
HE OECD recently released an update of its income inequality sta-
tistics. This provides a high-level analysis of income inequality
across OECD countries for the first three years of the crisis, up
to the end of . While important, the data used are - years
old and a lot has happened in the intervening period of tax increases and
public-expenditure cuts.
Income inequality increased by more in the first three years of the crisis
to the end of than it had in the previous twelve years, before factor-
ing in the effect of taxes and transfers, according to the report. Our welfare
systems have cushioned the blow for many but the report warns that fur-
ther social-spending cuts in OECD countries risk causing greater inequality
The most
unequal,
before
taxation
(2010)
OECD says Ireland’s tax
and benefit system raises
us from worst out of 31 to
17th worst out of 31, for
direct income
news
sinéad pentony
PHOTO: EOGHAN BARRY
Chart 1: Income Distribution and Inequality
Source: ETUI, Benchmarking Working Europe, 2013.
and poverty in the years ahead.
The report includes country-specific data on the Gini coefficient for direct
income (household income prior to taxes and transfers). Direct income
includes employee earnings, employer PRSI, self-employed earnings and
other direct income. The Gini coefficient measures income inequality, with
a score of zero signifying all households having identical income and a score
of meaning all income going to one household. For the countries
included in this analysis, Ireland had the highest level of inequality for
direct income by some
distance. The ()
Irish figure of . is
well above the OECD
average of ..
Ireland’s tax and
transfer system, on
the other hand, had
the biggest impact
on reducing the level
of income inequality,
giving us a net Gini
coefficient score of
. compared to an OECD average of .. This puts us th out of
countries, making us more equal than the OECD average albeit by a narrow
margin. However, this must be seen in a context of a general rise in income
inequality across the board, internationally.
This outcome reinforces the importance of the tax and benefit system in
protecting low-income households and in re-distributing income from the
top to the bottom. Our taxation system is clearly progressive and effective
in terms of re-distribution. However, the figures also highlight that huge
income differentials persist in Ireland even in times of crisis.
High levels of income inequality have social and economic consequences.
They increase the risk of poverty and stifle economic activity, particularly
in the domestic economy. In the EU Member states with high levels
of income inequality also featured high levels of risk of poverty. Ireland
was th out EU Member States, putting us with the group of coun-
tries with higher than average levels of inequality and risk of poverty. The
other countries in this group include Poland, Italy, Portugal and the UK.
Chart illustrates this relationship between income inequality and at-risk-
of-poverty rates in the EU Member States. It uses the ‘at-risk-of-poverty’
indicator and the quintile share-ratio measure, which measure the income
gap between the top % and the bottom % of earners.
Policy options to reduce income inequality include raising incomes at
the bottom, capping incomes at the top, using the tax and benefit system
to re-distribute income, and ensuring that big corporations pay their fair
share in taxes. The latter requires a global response to ensure multinational
corporations pay their fair share. Income caps and reductions have been
introduced in the public sector and the social-welfare system provides a
minimum income in Ireland. But, with over , people at risk of pov-
erty, the current levels of social welfare are clearly inadequate.
The government plans to close the remainder of the deficit primarily
through spending cuts, with minimal tax increases. The OECD recently
published figures for the tax wedge (essentially the difference between
before- and after- tax wages) in ‘Taxing Wages ’. The tax wedge is
generally reported as a percentage of total labour costs, including PRSI.
This report shows that for a single worker without children, Ireland has
the lowest tax wedge in the EU and the seventh lowest among the OECD
member states included in this report.
Ireland’s income-tax take is around the OECD average, but the social-
insurance contributions for both employees and employers are below
average (See Chart). A gradual move towards OECD-average levels of
Social Security Contributions (PRSI) would strengthen our social safety
net and enable a basic level of income for everyone.
Chart 2: Social Insurance Contributions
High levels of income
inequality increase the
risk of poverty and stie
economic activity
“
