Budget 2024 introduced some measures to soften the impact of the cost-of-living crisis but employers will continue to be under pressure to increase wages in 2024.
Introducing Budget 2024, Minister Michael McGrath said that he expects “living standards will improve for the vast majority in the next 12 months, with incomes growing faster than the rate of inflation.”
How will the measures taken in Budget 2024 contribute to this income growth and how much of that growth may be sought by way of salary or wage increases? Will the budget measures reduce the quantum of increases sought by employees?
The budget was framed against a backdrop of global uncertainty – economic and geopolitical. The estimated rate of inflation is just over 5.25% for 2023, while a rate of 2.9% is projected for 2024.
Unemployment rates in Ireland have dropped again from 4.4% last year to 4.1%, reflecting full employment and a tight labour market.
Data from the Central Statistics Office indicate that average earnings in the private sector rose by about 3.4% in Q1 2023 compared to the previous year and recent survey by global advisory company WTW (formerly Willis Towers Watson) reports that employers are budgeting for a 4% pay increase in 2024.
Budget 2024 – Income Tax & USC
Most taxpayers will benefit from the changes to personal tax credits, the widening lower tax band and the changes to USC. Many will also benefit from the increase in the tax credit for renters and the temporary mortgage interest relief.
Other changes such as home-carer, single person child-carer and incapacitated child tax credits will benefit targeted groups.
The impact of the main changes on take home or net pay for a sample of earners are set out in the table below.
Social welfare and families
Minister O’Donohoe announced significant increases in social welfare payments, and a package of winter payments to address the cost-of-living crisis.
The maximum rate of all weekly social welfare payments will increase by €12 from January 2024 with proportional increases for qualified adults and people on reduced rates of payment. This increase applies to social insurance payments paid to employees such as Maternity / Paternity / Adoptive / Parents Benefit as well as Illness / Health and Safety / Injury Benefit and Carer’s Benefit. Where employers make a top-up payment (on top of social welfare payments), the increase in these state payments will result in a cost saving for employers of €12 per week per person receiving the benefit.
To enhance labour market accessibility, the income threshold for the Working Family Payment will rise by €54 per week.
The one-off ‘cost of living’ measures include three ‘energy credits’ of €150 each which will be provided between the end of this year and April 2024 to assist with energy bills over the winter period, and a one-off reduction in the student contribution fee for undergraduate students of €1,000.
The universal personal taxation measures in Budget 2024 will increase the take home pay of the average earner by between 1.7% and 3.0% and the ‘energy credits’ could add a further 0.5% approximately.
In addition, the targeted measures will provide more financial support for the groups at which they’re aimed.
Income tax measures and pay awards tend to lag headline inflation by six months or more. Therefore, it may be argued that the actions in Budget 2024 will help offset the impact of 2023’s inflation which is projected to be 5.25%.
If that’s the case, employers will be under pressure to bridge the gap between that headline inflation rate and the net impact of the tax measures, i.e. something between 2.25% and 3.55%, just to deal with the inflation expected in 2023 alone.
Just as each individual will have different income requirements and tax profiles, so it is with business. Each organisation will have to work out what it can afford while looking to retain its workforce in a competitive labour market.
All other things being equal, an average staff cost increase of 4% or so as indicated in the survey mentioned earlier would seem like a reasonable budget assumption for 2024 right now.
DHKN works with our clients to help them plan their business and financial futures. If you would like to talk to us about developing a budget or financial plan for your business along with a process to monitor performance as you go, please contact Dave Hickey at email@example.com or on 087 6253657.