What level of income in Ireland makes you “ well off”, or on a “high” income? The answer, of course, is that it depends.
Looking at options for the Budget, the Revenue Commissioners this week hit on €80,000 as an income above which a new higher top rate of income tax might kick in. The implication was that at this income level you could afford to start paying more. And Taoiseach Leo Varadkar said budget relief would be aimed at “middle earners.” But where are the lines drawn? It is an area that shines a light on the argument over the so-called “ squeezed middle”.
Who earns what?
The Revenue Commissioner published new income distribution statistics this week, following representations from Sinn Féin, that showed for the first time gross income broken down by individuals, as opposed to taxpaying units. It shows around 144,000 people earning over €80,000, just under 5 per cent of the total.
Looking at the Revenue gross income tables, it shows half of all individual taxpayers fall below earnings of €25,000. It is important to remember the tax and benefit system evens out after tax income a fair bit, with Ireland having one of the most redistributive regimes among OCED countries.
Many households now have two earners. Although few would have a 50:50 income breakdown, just for illustration purposes, around one in four individuals, according to the Revenue, earn more than €40,000 per year.
These Revenue figures cover taxable incomes, which also include benefits such as the State pension and taxable social insurance payments such as job seekers’ benefit.
So the average for people earning from work will be higher, just under €38,000 in 2017, according to the latest CSO earnings data. When you factor out part-time employees, average full-time earnings for people in work were around €46,400 for 2017.
So yes, many dual-income couples will earn €80,000 -€90,000 a year or more, without being above the average in terms of their individual incomes. If one or both are in higher income sectors like finance and IT – where average earnings are €55,000 to €56,000 then joint earnings are likely to exceed €100,000.
What other evidence is there? Well, CSO household budget survey information from 2015/16 shows average gross household income at just over €57,000, and a reasonable assumption would be that this average now exceeds €60,000. This average covers both dual and single income households – and indeed those that may have other earners. So if your household income is €80,000 or more, your are definitely an above average-earning household.
A final way of looking at it is net after-tax income, which is of course what matters for your standard of living. The CSO data shows average weekly disposable (after-tax) income of €911 in 2015/16, likely to be around €950 now, or around €49,400 per annum. For a single person, this would require a gross income of around €75,000, allowing for tax deductions. For a single-income couple with two children, an income in the high €50,000s would see them hit the average, counting in child benefit.
The CSO data breaks up earnings groups into deciles - each representing 10 per cent of the total population with the first decile being the poorest and the 10th the richest. Although it would depend on circumstances, an €80,000 household would be likely to appear in the seventh or eight decile in terms of after tax or disposable income.
The Tax System
The Revenue Commissioners, in pre-budget calculations, said one option open to the Government was to introduce a new higher 43 per cent tax rate at incomes of over €80,000. The implicit suggestion was this made you a higher earner. But at what income level does tax policy suggest you become well off?
Well, if you want an exact answer, it is €70,044. This was the income limit set for the new 8 per cent USC rate in the 2015 Budget. The reason for this was to claw back gains from a cut in the top income tax rate cut from “higher earners.” So this is the income level set by officialdom as the gap between the masses and the better off. Former Minister for Finance, Michael Noonan said in a radio interview that “our definition of middle income is people below an annual salary of €70,000”.
There are other key points in the tax system too, and other policy debates. A single earner enters the higher 40 per cent at a modest income of €33,800 – a key anomaly of the Irish income tax system in international terms. For a single income couple the higher rate kicks in at €43,550. For a dual-income couple the cut off is €69,100 - twice the single rate.
Finally, there are some other specific measures aimed at higher earners, giving further clues to the official attitude. An extra 3 per cent USC charge applies on self-employed incomes over €100,000, for example.
It will be interesting to see how this pans out in the budget in October. Immediately after the crash, direct action was taken to claw back gains from those judged as higher earners, mainly through the USC manoeuvre. Last year the measures involved gave the greatest proportional gain to middle earners, though nothing was done to actually take back some of the gains from higher earners.
The cost of living - and particularly housing
The final calculation is the most difficult to generalise - it is what your income buys you and what is left after you pay for the “ essentials”. And here, not surprisingly, housing looms large.If your house is paid for, or you bought before the boom – or during the bust – €80,000 a year will leave you well placed. But not if you are on the buying or renting ladder at today’s prices in one of the major cities and particularly in Dublin.
New rent levels and house prices in Dublin are squeezing out more and more households and leaving those who have taken the plunge strapped for cash.
The latest Daft survey, for example, showed new rents in many areas of Dublin costing €2,000. If we take it that you should try to keep housing costs below 40 per cent of net after-tax income – and even this level is seen as high - this level of rent is becoming a real stretch for a single person on €80,000 (costing them around 45 per cent of take-home pay). Even for a one-income couple on €80,000 it is touching above 40 per cent, and for a dual-income couple it is just below the 40 per cent barrier.
Of course this is a new rental. Existing rentals, according to Rental Tenancy Board (RTB) figures, average just over €1,500 a month. This is just about affordable for a married couple with one earner on around €60,000 – again using our 40 per cent rule – but pushes a single earner on the same salary to paying a bit over 40 per cent of net earnings.
Outside Dublin the numbers get easier. The RTB figures show an average of €794 monthly rent for the State outside the greater Dublin area, affordable on an income of around €40,000, but rents in central Cork, Galway and Limerick all exceed the €1,000 level, so here too there are affordability problems.
The same sums apply to mortgage repayments, with the additional restriction of Central Bank income rules limiting loans in most cases to 3.5 times income. With average house prices in Dublin now around €360,000, this puts it out of the limit of the €80,000 earner – or earners. This income level gets a maximum loan of around €280,000. Assuming they have managed to save a deposit of 10 per cent of the property price, buyers will not be purchasing anything much over €300,000, unless they can lay their hands on more cash. Again assuming a 10 per cent deposit, earnings of around €92,000 to €93,000 are now required to afford the average house in Dublin.
As with rental,the affordable barriers are lower elsewhere, with the average national house price at €237,000. But still, making the same calculation, the average price requires an income of around €61,000, taking the Central Bank limits.
For buyers, similar cash sums apply as is the case with renters, though in many cases, if you can find a property, buying is often now a bit cheaper.
For example our mythical buyer of an average Dublin home with a mortgage a bit over €300,000 will pay some €1,400 in monthly interest on a 25-year loan. This would be around one-third take-home pay for an €80,000 earner (though, as noted above, this earner would need to access some extra cash, or get one of the exceptions to the loan rules allowed for a minority of buyers, to get an average Dublin house in the first place). High mortgage interest rate levels here add to the squeeze.
The bottom line
The bottom line is, yes, an €80,000 income is well above the average for an individual and above average for a household. However, many dual income households on average pay will exceed this level.
However, it is not an income level that will leave many with a lot of spare disposable income at the end of the month. When you add in Ireland’s place as among the most expensive in the EU for a basket of consumer goods – seventh highest of 39 EU countries and the third highest in the euro zone – and the high price of key services like childcare, it is easy to see how, for those living in Dublin or another one of the major cities, there may not be much spare disposable income at the end of the month, even on earnings of €80,000.
For someone living in, say, Sligo, Donegal, Tralee, Longford or Athlone – towns outsider the major cities – the much lower cost of housing would lead to a much more affordable lifestyle on an income of €80,000.
But in Dublin it is a different story, for any younger families renting or buying or seeking to do either.
For those with their mortgages paid off, or who purchased at lower levels, it is, of course, a different story. But the cost of rental and housing in Dublin and the other major cities, combined with the high tax take on middle incomes, has created the much-discussed squeezed middle of mainly younger people and families. When you can’t afford to buy an average house, or rent an average apartment, then you can hardly be defined as well off or living on a high income – even if it is higher than the average.
