Standard of living in Ireland declined again in third quarter of 2022

The standard of living in Ireland declined in the third quarter of 2022 for the third time in four quarters as wages failed to keep pace with rising inflation, data from the Central Statistics Office (CSO) shows.

On the one hand, incomes of households before inflation rose slightly, with the wage bill across almost all activities rising. The only sector where wages declined was industry where the decline was marginal.

Higher take-home pay meant higher taxes and PRSI paid by households. There was also higher investment income received on assets such as pension fund holdings as interest rates rose.

However, while the nominal “household total disposable income” rose, prices rose at a faster rate. This meant household income did not keep pace with inflation, and declined in real terms after the rise in the cost of living was accounted for.

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That was the third time the standard of living declined in the previous four quarters. It was down from a peak in the third quarter of 2021 when it was at its highest level in the 24-year series.

The data also showed the household saving rate was 19.5 per cent. That was nearly twice the long term average rate, but it has been slowly declining over the past year.

The CSO said households have generally decided not to wind down their lockdown savings, but rather to continue to add to wealth.

Investment in non-financial assets, such as dwellings, went from €1.7 billion in the third quarter of 2021 to €2.7 billion last year. Households also paid off €200 million in loans rather than take out new ones, and added €2.4 billion to their €145 billion deposits in banks.

There was a slight increase in spending due to larger volumes of goods and services being consumed, as well as price inflation.

The Consumer Price Index in September showed a three month rise of 0.6 per cent. The largest contributors to this increase in the cost of living were housing, water, electricity, gas and other fuels, as well as hotels and restaurants.

The economy as a whole grew, driven mainly by foreign-owned non-financial corporations. The value of these companies was up 21 per cent, or €17.8 billion. This included an increase of €1.7 billion in pay to workers and €14.9 billion in profit.

Most of the additional profit then flowed out to the owners of the corporations in other countries as investment income, while an extra €2.3 billion was paid to the State in corporation tax.

Irish GDP was up €19 billion, or 17 per cent, to €134 billion in the period. Stripping out the impact of multinationals, gross national income was up €7 billion, or 8 per cent, to €96 billion.

The consumption of goods and services by households and Government was up 7 per cent to €43 billion.

Capital investment amounted to €56 billion, which represented an increase of €31 billion, driven by investment in intellectual property (IP) assets.

After all transactions are included, Ireland was a net borrower of €11 billion in the quarter, whereas it was a net lender of €22 billion in the third quarter of the previous year. The large investment in IP was the main cause of the change.

The Government surplus amounted to €2.4 billion in the quarter, which was a €4.8 billion improvement on net borrowing of €2.4 billion in the equivalent quarter of 2021. The improved position this quarter was due to both increased revenues and lower expenditure.

On the income side, revenue from taxation was up due to higher earnings, and higher profits in the economy as a whole. Taxes on income and wealth went from €9.2 billion to €12.7 billion as households paid €800 million more income tax and companies paid €2.7 billion more corporation tax.