Thursday, 15 January 2015

Think again about the 'squeezed middle'

Nat O'Connor: Ireland's 'squeezed middle' has been defined by the Minister for Finance, Michael Noonan, as those earning between €32,800 and €70,000 (e.g. the figures were repeated again in the Irish Times).

That basically means any single person once he or she begins to pay income tax at the higher rate of 40%.

What isn't clear from Minister Noonan's definition of 'the middle' is whether he is focusing on individual incomes or household incomes. Obviously, there is a big difference between one person earning €40,000 and two people each earning €20,000.

But unless we are talking about individual incomes, married couples on up to €140,000 would still fit in Minister Noonan's definition of the squeezed middle (and be potentially in line for further tax cuts) despite being in the Top 2% of the income spectrum.

The following chart shows Revenue data for tax cases (either singles or couples) by their gross income before tax. There are 2.05 million cases, representing 2.85 million adults; i.e. there are c. 800,000 married couples in the data, slight over half of which are dual-earner couples.

(Click to enlarge)

Three things to note when reading the chart:

  1. Revenue has no data for over 750,000 adults (15+), who have no taxable income - presumably for many of the approximately 350,000 secondary and third level students aged 15+, as well as for some people entirely reliant on social protection incomes.
  2. We don't know how many single tax payers are cohabiting with another earner, therefore benefiting from a higher household income.
  3. Where social protection incomes are a taxable part of a larger individual or household income, they should be included in the Revenue data - e.g. someone with both a State Contributory Pension and an occupational pension might have a tax liability.

If we begin counting the so-called 'squeezed middle' from those on incomes of €30,000+, they are actually the top 25% of all adults in Ireland by income share. If we exclude the adults not in Revenue's data, they are in the top 32%. In neither case are they the real middle.

It is also possible to estimate the distribution of taxable income by dividing married incomes 50:50 between couples, as shown in the next chart. This is not the best method of indicating market income distribution, which is often skewed towards one earner in a couple (the other of whom does more unpaid work), but it is one way to illustrate the average income per adult.

(Click to enlarge)

In this data, which removes the distortion of single versus dual income tax cases, those on incomes over €30,000 are in the top 15% of all adults in Ireland, or the top 20% of all adults in Revenue's data.

The middle adult taxpayer in Revenue's data is an adult in the €20,000 to €30,000 income group, below the 'squeezed middle's' LOWEST point of €32,800.

All of this is yet another way to show that the 'squeezed middle' is just a rhetorical device to make it sound OK to cut the higher rate of income tax for the minority of people who already enjoy a greater share of market incomes. Those earning from €32,800 to €70,000 are neither the 'middle' nor the most 'squeezed'.

This is not to say that some people on those incomes may not be under serious pressure due to mortgage debt or other issues. But that would call for targeted measures like mortgage relief for the over-indebted, not blanket tax cuts for an income category that includes many people without major mortgage debt or other such pressures.


Michael Bourke said...

Just wondering looking at the figures how this ties in with home ownership or the ability to service a mortgage. Is there further breakdown on the age distribution of these figures. It is hard to see how any person or couple could service a mortgage in most of the country if 80% are earning or declaring an income of below 30K.

Nat O`Connor said...

The data does not give any age or regional breakdown. (Data is here Table IDS1:

Nat O`Connor said...

On home ownership, with an average asking price of €193,000 nationally - and lower than €150,000 in 20 counties - you can see how a couple on €25,000 each could conceivably borrow €150,000 (three times their combined annual salary) in order to buy a home.

Source DAFT, see

You are probably right to guess there might be a slight age gradient in pay and also a large bias towards higher pay in Dublin (alongside higher house prices).

Nat O`Connor said...

Also, you are right to link up low average pay with the fact that over 117,000 mortgages are in arrears.

Nearly 85,000 are more than 90 days in arrears.


Michael Bourke said...

I could just conceivably see a couple buying a house on two incomes of 25K, if also takes a lot of presumptions like time taken on that low salary to generate a 10% deposit, lack of other outgoings like car loans or other loans before even considering childcare, which brings into type of accommodation that would be suitable at that price especially in urban areas where most of the employment is centred.
I just find the distribution shocking, it seems at times we are a rich country full of poor people. Do other countries have a similar income distribution or is Ireland unique.
Is it unusual that no data exists for such a large number that don't seem to be paying any tax, students excused.
If you take 20% are earning >30k that roughly equates to 570K people. What proportion say of the roughly 300K civil servants would be paid a wage over 30K. As there has been a moratorium if you take a clerical officer will reach a payscale over 30k with years of service, it just doesn't leave very many people in what is classed a high skilled economy earning a salary that is paying most of the taxes.
As I say maybe this is not unique, it just seems that income or credit based on income is coming from somewhere and to me the figures don't make sense.

Nat O`Connor said...

Looking at it differently, a single person needs €23,247 to have a decent, albeit modest, quality of life based on current prices, including housing. Similarly a Family Living Income is calculated between €20,540 and €26,030 for a couple with two children. (

That's feasible for everyone if we redistributed the income slightly, shored up public services and regulated market prices for essentials (e.g. energy, rent).

Also, most home owners either own outright (half of them) or have a low mortgage because they bought pre-boom. Only recent enough purchasers and those who 'released equity' are really stung by mortgage costs. And renters are really squeezed too.

There's a lot more number crunching needed to get a clearer picture of income distribution, which hopefully the Government's Low Pay Commission will get done: