Lower income households are disproportionately hit by the effects of indirect taxes like VAT and carbon taxes when compared to those with higher incomes, a new analysis has found.
The findings from the Parliamentary Budget Office (PBO) report show that on average Irish households pay €151 per week in indirect taxes.
Overall, this amounts to 13% of household spending or 12.6% of household income, the PBO found.
Low-income households, classified as the poorest 10%, pay an average of €88 per week in indirect taxes, equivalent on average to 14.3% of household spending or 29.2% of household income.
But in the case of high-income households, considered to be the richest 10%, the average amount of money spent each week on indirect taxes is €216.
Because their household income is higher, this makes up around 10.5% of their household spending on average and accounts for just 7.9% of their income.
The study also found that VAT is the largest and most regressive element of the indirect tax system.
Irish households pay €113 on average per week to it, equivalent to 8.7% of household income or 8.9% of household spending.
Those with lower incomes pay €58 a week in VAT, which equates to 19.4% of their income and 9.5% of their spend.
Higher income households, on the other hand, pay €159 a week in VAT on average.
That represents 5.8% of their income or 7.7% of their outgoings.
The research also explored the planned future increases in the carbon tax, which is due to rise each year until it reaches €100 a tonne by 2030.
In the report, the authors simulate the effect that a €100 per tonne carbon tax would have on Irish households had it been in place last year.
They found it would lead to the poorest households facing a €4.60 increase in indirect taxes.
That would represent 1.5% of their household income on average.
That compares to a €11.20 a week increase in indirect taxes for the richest households, which amounts to just 0.4% of their income.
The study also found that indirect taxes are particularly burdensome for low-income households because they spend more of the outgoings on energy products.
The higher relative spending by low-income households on highly taxed products such as alcohol and tobacco also contribute to the regressive nature of indirect taxes, the report also claimed.
Article Source – Lower income households disproportionately hit by effects of indirect taxes – RTE