Income growth has either fallen or stalled since the Covid-19 pandemic among the lower half of earners in the Irish economy, the Oireachtas Committee on Budgetary Oversight will hear on Tuesday.
In a statement, the Economic and Social Research Institute (ESRI) says the latest data shows a fall in income growth for the lowest 10 per cent of workers and a stalling for the other 40 per cent at the lower end of the scale. This change, it says, comes after decades when income inequality was falling and is in contrast to what is happening at the upper end.
“This has been driven by a fall in work hours, and months, of full-time work per year which suggests an unequal labour market recovery,” it says.
The ESRI is to address the committee as part of its discussions in advance of next month’s budget announcement.
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It states that higher-income earners appear to be more exposed to higher interest rates as a result of their mortgage choices.
“Lower income [households] are much more likely to have a fixed-rate mortgage and are therefore less exposed to interest rate rises,” the ERSI says in its submission. “Middle- and higher-income groups, who may be more able financially to meet rising interest rates, are more likely to be exposed to interest rate increases due to a higher prevalence of tracker and variable mortgages among these income groups.”
In the opening statement, the ESRI’s Prof Kieran McQuinn and Dr Claire Keane say the last number of years have seen the Irish economy perform particularly strongly even after being hard hit by the impact of the pandemic.
“The Irish labour market is experiencing a degree of buoyancy unseen since the days of the Celtic Tiger. The recovery in the labour market since the challenges posed by Covid-19, when unemployment was in excess of 30 per cent, has been substantial.”
They also point to another indication, the general government balance , which showed a surplus of 1.6 per cent last year, and is likely to show a surplus of 1.8 per cent, or €10 billion, this year, even after €4 billion has been diverted to a special reserve fund.
The ESRI is of the view that the economy will likely experience more moderate growth as expansion in the ICT and pharma sectors slows.
The economists expect inflation will continue to have a negative impact. While the rate is falling, and energy prices are coming down, inflation is evident in the food sector and in housing, which will impact on real household income levels.
The submission also cites the difficulties the Chinese economy is experiencing as “another challenge on the horizon”.
“The increasingly autocratic nature of the Chinese regime appears to be impacting consumer and producer confidence with both Chinese consumers and companies increasingly prioritising short-term liquidity over longer-term investments,” they say.
Budget 2024 will be announced at a time when the Irish economy is strong but a change from high to more moderate growth is happening, they say.
“In areas such as housing, healthcare and climate change it is clear that significant investment by the State is required if infrastructural bottlenecks are to be addressed,” the submission notes.
“Unfortunately, due to the higher interest rate regime we are now in, investment in these key areas by the private sector is set to be more expensive; this may entail the State having to incur greater levels of expenditure than had been previously anticipated.”
The ESRI officials also welcome investment in a special reserve, or rainy day, fund as a “correct and prudent” move. They say it will allow “policymakers to differentiate the recent surge in revenues between those that are sustainable over the medium-term and those that are more transitory or ‘windfall’ in nature”.
