Over the past 10 years, Irish families have typically been a little bit better off after budget day as we move further away from the swingeing budgets of the post-financial crisis era.
Apart from 2020, when the Covid-19 pandemic kept an easing of the income tax burden at bay, households have seen a fall in the amount of tax they pay – all other things being equal – every January 1st since 2015.
A single person earning €36,000 in 2015 would have taken home €2,527 each month. Fast forward to 2025 and that has jumped by €273 to €2,800. But do we feel any richer?
Given the impact of inflation over the same period, much of the benefit of these budget-day measures has been wiped out. According to the Central Statistics Office’s inflation calculator, adjusted for inflation, you would need an income of €44,273 today to match what €36,000 was worth in 2015.
RM Block
And not everyone’s incomes has kept pace with inflation.
Nonetheless, paying less tax is always going to be popular. So, in advance of next week’s budget, we take a look at how households have fared over the past decade and who the biggest winners and losers of budgetary policy have been.
Middle-income winners
A focus of most recent budgets has been on reducing the tax burden on middle-income earners, the so-called “squeezed middle”. As then taoiseach Leo Varadkar said back in 2023: “I believe middle-income earners pay too much tax and USC.”
The result of this is approach, as this summer’s Department of Finance Tax Strategy papers note, is that the point at which people start to pay income tax at the higher rate has increased significantly in recent years. Families get to pay the lower rate of tax, 20 per cent, on a greater proportion of their incomes, thus reducing the overall amount of tax they pay.
The single standard rate band has increased by €8,700, or 24.6 per cent, since 2020 to €44,000 this year. This also compares with the pre-crash level of €36,400 back in 2010, and it has helped middle-income earners hold on to more of their wages.
Consider our single-income family, Jian and Sean, on wages of €47,500. Between 2016 and 2025, they have kept an additional €315 in their pockets each month – an increase of almost 10 per cent. It makes this family the biggest winner among our households in terms of the reduction in their tax burden.
Higher earners
Higher earners have enjoyed the same tax reliefs as middle income earners over the last decade but, proportionately, budget measures over that time have had a smaller impact on their take-home pay.
Consider our married couple, Mark and Linda, with an income of €325,000 between them.
Back in 2016, their take-home pay was €15,086 a month, after tax. Fast forward to this year, and they have an extra €713 in their pockets each month. However, in percentage terms, that increase is less than 5 per cent – so considerably less than our middle-income earners.
It’s a similar story for Ekene and Alison, who have combined earnings of €175,000. They, too, have seen their take-home pay rise, by €512 a month. However, this is a percentage increase of less than 6 per cent.
No surprise perhaps that their tax burden isn’t falling more sharply when you consider how much tax this cohort contribute to the Exchequer each year.
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According to Revenue estimates, the top 1 per cent (about 34,900 taxpayer units), who earn over €297,400, will contribute 23.4 per cent of the income tax and USC yield this year. The top 5 per cent – those earning over €146,500 – will contribute almost half, or some 48 per cent, of the total income tax and USC yield.
Low earners
In between the middle-income earners and those on substantial six-figure incomes are the low-income earners.
They too have seen a reduction in income taxes paid over the past decade. However, they have missed out on the gains enjoyed by the others, as their incomes aren’t high enough to benefit from a widening of the standard rate band.
Rebecca, for example, on an income of €22,000 a year, has seen her take-home pay increase from €1,627 a month in 2016, to €1,737 in 2025 – an increase of some 6.7 per cent.
Pensioners
It’s a little trickier to assess how pensioners have fared over the past decade, given that they have also benefited from an increase in the state pension.
While not given every year, frequent increases in the value of the state pension mean that, since 2016, our pensioners, Leslie and Kitty, have seen their incomes increase from €46,263 to €52,087.
This means that their after-tax incomes have risen by more than 14 per cent – but not all of this is due to lower taxation.
Outside the tax net
While beyond the scope of our budget families, it is also worth considering how families who are outside the tax net have fared over the past decade.
First up is income tax. According to Revenue figures, some 7 per cent, or more than a quarter of a million taxpayer units (single people or couples filing jointly), will be exempt from paying income tax next year. Those exempted are taxpayers aged 65 or older and whose total income is less than the exemption limit.
And 29 per cent of income earners – or a hefty 1.025 million taxpayer units – won’t pay any USC as it only kicks in once you start to earn more than €13,000. This group includes part-time workers earning less than €13,000 a year, those in receipt of small occupational pensions of less than €13,000 a year and taxpayers whose sole income is the state pension.
But how does this compare to previous years?
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Given a change in how Revenue calculates exempt income tax earners, looking at those who don’t pay USC offers more of an insight.
Back in 2023, for example, 35 per cent of income earners, or 1.14 million taxpayer units, were outside of the USC net. However, going back further, to 2018 and 2016, we see that 29 per cent of income earners were outside the scope of USC at that time so the trend has been steady over the past decade.
But is it too high? After all, keeping so many people outside the tax net can put increased pressure on those who do pay tax to contribute more. The tax strategy papers concluded that “it is vital that the tax base is continuously monitored to ensure it is not narrowed further”.
