Analysis:We have become accustomed in recent years to budgets with very substantial packages of tax reductions and welfare increases.
Over the past five years these packages have provided a greater income boost for those with the lowest incomes, and less for those at the top.
Slower economic growth and weakening tax revenues reduced the resources available for Budget 2008. But how were these resources distributed? Was it a case of scaling back across the board, or were low-income groups given more favourable treatment?
Analysis using the ESRI tax-benefit model (Switch) shows that while Budget 2007 provided a boost of about 1½ per cent to average incomes, gains from Budget 2008 were less than one-tenth of 1 per cent on average.
Budget 2008's tax and welfare changes did provide modest gains for low-income groups, but were broadly neutral for middle and upper-income groups.
On average, the poorest one-third of the population received an income boost of about 1-1½ per cent from Budget 2008 as most welfare payment rates increased slightly faster than expected wage growth. For other income groups, indexation of tax credits and tax bands by about 4 per cent, close to expected growth in earnings, means that the Budget was broadly neutral, neither boosting nor reducing income.
Tax bands and credits or allowances have not always been fully indexed when the public finances come under pressure. Indeed, the most powerful "stealth tax" available to finance ministers the world over is under-indexation or non-indexation of bands and credits, and it is a welcome development that this temptation has been avoided.
Welfare policy has had a major impact in reducing pensioner poverty in recent years.
The risk of income poverty for pensioners has fallen from over 40 per cent in 2001 to less than 14 per cent in 2006, as measured by the CSO's Survey on Income and Living Conditions.
Persons over 65 have moved from having a high risk of income poverty to having a lower-than-average risk.
This success does raise the question of how payment rates for pensioners and other welfare recipients should evolve in the future. Most payment rates were raised by €12 per week, but the State contributory pension (formerly the old-age contributory pension) was increased by somewhat more - €14 per week for an individual, and over €40 for a couple.
Now that risks of poverty have been reduced to low levels for older persons, it could be argued that future policy should aim to maintain the value of the State pension in line with earnings, focusing resources on other groups at higher risk of poverty.
Stamp duty takes the form of a tax on transactions - and therefore discourages moving house. Furthermore, the old structure involved "jumps" in stamp duty liability at different house price levels, which created distortions.
The changes in stamp duty, therefore, have some positive features from a microeconomic point of view. On the other hand, the changes involve a net reduction in housing-related taxation, altering the signals for investment of resources as between housing and other areas.
The decision on this issue was taken in the context of the current slowdown in the housing market after a very prolonged boom. But the tax and subsidy treatment of housing needs to be reviewed in a medium-term context - something which should be high on the agenda of the incoming Commission on Taxation.
Tim Callan is a research professor at the Economic and Social Research Institute
