Irish Covid-19 supports among world’s most generous – OECD report

Real disposable income in Irish households – after-tax income adjusted for inflation – grew close to 8pc in 2020, the highest rate amongst a group of 31 (mainly European) countries studied by the Organisation for Economic Cooperation and Development (OECD).

The Paris-based OECD said the 2020 growth rate was double the average in the four years to 2019.

Households in Lithuania, Canada, the US and Australia also saw significant income growth in 2020, although most dropped back to four-year averages in 2021.

Irish data for 2021 is not yet available.

Real incomes grew just under 8pc in Lithuania, over 7pc in Canada and close to 6pc in the US and Australia.

“In some countries, such as Australia, Canada, Ireland, Lithuania and the United States, extraordinary government support, often in the form of cash transfers and other benefits, resulted in an unusually strong increase in real incomes in 2020,” the OECD said in its annual Tax Policy Reforms report on Wednesday.

“However, in most countries, government support associated with restrictions on the consumption of some services also helped to raise household saving rates to record highs, largely to the benefit of the wealthy and those households with higher incomes.”

The Irish household savings rate reached 25pc in 2020, according to the Central Bank, the highest annual increase across the 19-member eurozone and more than double previous years.

According to the Central Statistics Office, median household disposable income - the mid-point between the highest and lowest incomes - rose 5.2pc in 2020 to €46,471.

However, the CSO said it rose more for unemployed people, thanks to Covid supports.

The at risk of poverty rate was 11.6pc in 2020, down from over 13pc in 2019. Without Covid income supports, the CSO says the risk of poverty rate would have been 19.9pc.

The OECD report says tax reforms helped governments shore up their economies during Covid.

However, it has warned Governments that capping energy prices - rather than funnelling supports to vulnerable consumers – will disproportionately benefit rich people and boost demand for fuel.

Tax breaks on energy since October 2021 have cost Governments $246bn (around €246bn) so far - $169bn of which has “come in the form of support for fossil fuels” the OECD said.

Income supports account for only a third (34pc) of all government supports, with most of those targeted to benefit low-income households, the report found.

Price supports - which made up 66pc of all measures - were almost completely untargeted.

“Governments’ responses have focused largely on price control – which tends to support rather than curb demand,” the report said. “Benefits can accrue disproportionately to large energy consumers, who often have higher incomes.”

Meanwhile, the report found that despite bumper tax receipts during the pandemic, Irish tax revenues fell 3.5pc as a percentage of GDP, the largest fall in the 38-country OECD zone.

However, this was due largely to reduced Vat rates in 2020 and the massive surge in exports and GDP growth in the multinational sector.

Ireland is one of 10 countries where taxes on income and company profits together represented at least 40pc of total tax revenues in 2020. The average in the OECD was 32.8pc.

“Recent tax reforms have been targeted at stimulating economic recovery from Covid-19, while countries with the greatest fiscal space have been providing more generous tax benefits for longer periods of time,” said Pascal Saint Amans, Director of the OECD Centre for Tax Policy and Administration.

“Countries have also used tax policy as one of their main tools in responding to rapid rises in energy prices.”