Household Disposable Income

Total Gross Disposable Income (B.6g) of households grew by €8.6bn (7%) in 2021. Figure 1.1 shows the changes in its components (columns) and the change in Disposable Income itself (line). The graph illustrates the difference compared to the previous year, rather than the absolute amount of each item. In most years, the biggest contributor to the change is wages and salaries paid to employees. This has been going up in each of the ten years shown. There has been a corresponding but smaller increase in the taxes paid on this income (D.5) which reduces the Gross Disposable Income. In 2020, net social benefits overtook wages as the biggest contributor to the change in incomes. Owing to the COVID-19 pandemic, many activities were curtailed, and workers in hospitality and retail were particularly affected. Government provided support for those workers in the form of the Pandemic Unemployment Payment (PUP, part of D.62) which drove up net social transfers. Of course, this does not mean that those individual households receiving the PUP had higher incomes: in fact, these workers were generally worse off. Rather, these households received social benefits where before they had received wages, while the overall wages paid to those who continued to work grew only slightly. In 2021, wages were again the main source of household income growth as the pandemic restrictions were removed. More people were in work and average pay per worker was also higher.

 

Distribution of Disposable Income

These institutional sector accounts treat households collectively. The Survey of Income and Living Conditions (SILC) gives insights into the distribution of disposable income within the household sector. This is illustrated in Figure 1.2 below. Each segment of the bar (quintile) represents a fifth of the population (so there are around one million people in each category). The income is adjusted (equivalised) to take account of the fact that the same income goes further in a smaller household (for example, a single person on €60,000 is better off than a family with three children on the same income). In 2021, the top quintile received 36.5% of disposable income, while the bottom quintile took just 9.6% of the total. These people with the lowest incomes received a slightly larger share of the total household income in 2021 than they did in 2020 (9.6% compared to 9.3%). The SILC provides further detailed information on how incomes are distributed, while these institutional sector account show how households taken together fit into the broader macroeconomic picture.

Income of Employees

Figure 1.3 shows the changes in Compensation of Employees (CoE) in more detail. The Figure illustrates the sectors from which wages came in each year. As well as wages, CoE encompasses benefit-in-kind and other labour costs. In 2020 this included around €3.8bn in Employment Wage Subsidy Scheme which was paid to employers and then to the workers affected by the pandemic. In 2021, the EWSS was €4.3bn. 

We can see that almost all sectors increased their compensation of employees between 2014 and 2019. Between 2016 and 2019 a growing proportion of the total wages were paid by the foreign-controlled non-financial corporations (S11a). Then in 2020, with the COVID-19 pandemic, domestic corporations (S11b) sharply reduced their pay to workers (even with the EWSS) as many employees were furloughed. At the same time, the foreign-controlled corporations continued to pay more for their labour costs. In 2021, domestic corporations sprang back above pre-2020 levels of compensation of employees, while foreign-owned companies continued their upward trend.

Household Saving Rate

In 2020 the saving rate of households increased sharply as incomes went up while spending decreased dramatically. Expressed as a percentage of Total Disposable Income (that is, Gross Disposable Income and the Adjustment for the Change in the Pension Entitlement) the gross saving ratio was 10.4% in 2019, 25.9% in 2020 and 24.8% in 2021. Total Disposable Income increased by €8.9bn (7%) to €132bn in 2021, while Household Final Expenditure on goods and services (P.3) increased by €8.2bn (9%) to €99.1bn. As a result the Gross Saving of households (B.8g) remained very high at €32.6bn. Figure 1.4 shows Total Disposable Income, Final Expenditure on goods and services and the saving ratio for the household sector for the period 2011 – 2021. Also included in Figure 1.4 is the EU saving ratio. While Ireland's saving ratio was below the ratio for the EU as a whole for most of the period shown, in 2020 and 2021, Ireland's ratio was above the overall EU's: this was because incomes in Ireland rose faster than the rest, and also because spending was curbed more in Ireland than in the EU generally.

Household Debt to Income Ratio

The balance sheet position in relation to household and NPISH debt (Liabilities - (AF.4) Loans) continued to decrease from a peak of €203bn in 2008 to €127bn in 2021. Figure 1.5 charts the movement in income and debt for the period 2001 to 2020 together with the ratio for Ireland and the Euro area. 

This debt to income ratio is a key indicator of the sustainability of household debt. It stood at 95% in 2021. This is the lowest it has been in the 21-year series, and the first time it has been below the ratio for the Euro area as a whole.

In the early part of the series up to 2008, debt increased to fund investment in housing and this declined as the value of new houses purchases decreased between 2008 and 2013. While new dwelling purchases have been increasing in the years since then, they are still some way off their peak in 2006. The mortgages taken out in the first decade are being repaid faster than new mortgages are being taken out and this leads to the reduction in total loan liabilities. 

While the balance sheet position has been improving, household incomes have been increasing, so both the numerator and denominator of the resulting debt to income ratio have been contributing to its decline. 

Use of Household and NPISH Saving

Gross household and NPISH saving (B.8g) was €32.4bn in 2021. The line in Figure 1.6 illustrates the Gross Saving over the last eleven years and it is clear that the last two years have been exceptional.

The columns in Figure 1.6 illustrate how that saving was used. Saving adds to wealth in the form of real assets, such as houses, and financial assets such as deposits. Saving is also used to reduce liabilities, such as loans. It is important to make the distinction between balance sheet measures of household debt, i.e. the outstanding stock of loans illustrated in Figure 1.5 and transactions in loans, i.e. increases (+) or decreases (-) included in Figure 1.6.

The large growth in saving during the pandemic saw an acceleration of the trend towards higher deposits which has been observable over several years. Households put €13.7bn extra on deposit with banks and other financial institutions in 2021. Back in 2011, households withdrew more deposits than they made but over all years since then, assets of deposits in banks have increased. During the housing boom of the 2000s, households invested significantly more in homes and other tangible assets than they put on deposit. In the last decade investment in new homes has been more modest, and in 2021 household fixed capital formation (mostly investment in new homes) was €7.1bn, little more than half as much as was put into deposits. Households also put €3.5bn aside as investment in insurance and pension funds. As we saw, households also used saving to repay loans: in 2021, repayments of principal on earlier borrowings was €1.3bn greater than total of new loans being taken out.