Ireland’s Inequality of Market Income moves towards OECD average

One of the notable features of the distribution of income in Ireland in the decade after the crash of 2008 was the unusually high level of inequality of market income.  See previous post for some discussion of definitions.

Using estimates from the OECD, the gini coefficient for the distribution of market income reached almost 0.60 in the years after 2008 and was the highest in the OECD (and also the EU). However, since then the gini coefficient for market income has declined and the latest update from the OECD shows the estimate falling below 0.50 for the first time.

The distances between the ginis are indicative of the impact of transfers on income inequality (from market income to gross income) and of taxes (from gross income to disposable income).

The impact of transfers rose considerably in the crash, as 300,000 jobs were lost and many became reliant on unemployment-related and other transfers.  With the onset of the recovery, the impact of transfer reduced as the numbers working rose with a related fall in the numbers on unemployment supports.

In 2010, it was estimated that transfers reduced the gini coefficient by 0.21 points. By 2016 this had fallen to 0.16 with a further reduction to 0.13 in 2022 which is the lowest it has been put at.

On the other hand the impact of taxes on income inequality is estimated to have increased in the past 20 years from 0.05 points in 2004 to 0.08 at the latest estimate.

Here is where the estimate of the gini coefficient of market income for Ireland sits relative to the 41 other members of the OECD. 

It can be discerned how much of outlier an estimate close to 0.60 would be.  But the latest estimate for Ireland below 0.50 moves Ireland relative position towards the middle of the OECD ranking.  Ireland is now 13th of the 42 OECD member states and converging on the arithmetic average for the OECD of 0.47.

Ireland remains below the OECD average for the gini coefficient of disposable income with a 2022 estimate of 0.29 compared to an OECD average of 0.32.  This means the impact of transfers and taxes in Ireland remains high in EU terms, with their combined impact the fourth highest in the EU.

The impact of transfers on the gini coefficient in Ireland is now close to the OECD average, 0.13 in Ireland versus an arithmetic average of 0.12 across the OECD.  It is for the impact of taxes that Ireland continues to stand out.

In 2022, Ireland’s gini coefficient for disposable income was 0.075 points lower than that for gross income. No other country showed a reduction in inequality to the income taxes and social contributions as large as this.

Finally, given the impact of demographics, old-age dependency ratios and pensions here is the gini coefficient for market income for those who are most likely to be in receipt of it – the working age population from 18 to 65 years.

Ireland is eighth-highest in the OECD, though the gap to the OECD average is modest. Among EU member states, only France and Greece have higher estimates but is within a couple points of five more.

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CT disappoints–but only relative to elevated expectations

When Budget2024 was published back in October 2023, the forecast was for €24.5 billion of Corporation Tax to be collected in 2024.  The recent end-year Exchequer Returns show that receipts came in at €28.1 billion, giving an overperformance of €3.6 billion or 14.7 per cent. 

Note that everything here excludes any receipts linked to the CJEU ruling in the Apple State-Aid case.  The overperformance relative to the Budget2024 forecasts was greater than the total amount collected in 2011. Yet, still, the final outturn was somewhat disappointing.

This was because as 2024 progressed, a strong performance early in the year gave rise to expectations that this would continue into the second half of the year.  This was particularly true of June which serves as a useful bellwether to what might be collected later in the year and June 2024 was 38 per cent higher than the same month in 2023.

By the time of Budget 2025 last October, the expectation was that total CT for the 2024 would be €29.5 billion.  This was not an unreasonable expectation given what was known at the time.  However, the upward trajectory of the 12-month sum as shown above, which was very strong in the first half of 2024, stalled not long after the Budget.

And while the key month of November was strong, it was not by as much as the June figure might have indicated.  On a monthly basis June 2024 was 38 per cent higher than the June of the previous year.  Given the links between payments a similar increase might have been expected in November, but November 2024 was “just” 15 per cent higher than the same month of the previous year.

However, as we recently pointed to, even with this lower growth in November, a key reason for failing to reach the most recent 2024 CT forecast was because of a weak October.

The monthly October receipts are a pin-up to highlight the concentration and volatility of Ireland’s CT revenues, with large, and seemingly unpredictable, swings from year-to-year.  And it is possible, even likely, that a single firm may be responsible for the volatility shown.  If October 2024 had matched 2023, never mind the peak of 2022, then total CT receipts for 2024 year would have fairly close to the most recent Budget forecast. 

As it turned out, both November and December set records for monthly receipts, with December being particularly strong.  Here are the individual monthly receipts for November and December for the past 15 years.

There is really no reason to combine November and December, other than to show that the receipts across the two months reached almost €10 billion in 2024.  We should not become immune to the scale of these numbers.

The strong December receipts may be a pointer to strong receipts next May – these are months six and eleven for companies with a June year-end. The relationship isn’t as strong as that for the June and November receipts but still a record in December 2024 points to next May being strong as well.

To conclude here is the cumulative annual chart for recent years.  It is now up to 11 pretty much non-overlapping lines.  There are so many lines, value labels for all of them can’t be easily accommodated so only those for even-numbered years are shown.

And there is nothing to suggest that 2025 will break the pattern and give a line that drops below the previous year.

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