Government income supports significantly mitigated impact of COVID19 on household incomes

Feb 23rd '21

  • The government’s COVID-19 income supports bolstered household incomes and debt sustainability, particularly in lower-income and highly indebted households, throughout 2020.
  • In Q2 2020, median household gross income fell by 1.7% relative to the same period in 2019, before returning to annual growth of 3% in Q3 2020.
  • While debt ratios have risen for the most indebted households, these remain far below what they would have been without COVID-19 income supports.


The Central Bank of Ireland has published an Economic Letter entitled The Impact of COVID-19 on the Incomes and Debt Sustainability of Irish Households. Authored by Reamonn Lydon of the Central Bank and Brian Cahill of the Central Statistics Office (CSO), the Letter captures findings from a joint Central Bank/CSO research collaboration on the social and economic impact of COVID-19. A CSO Frontier Publication that accompanies this Letter describes in detail the data sources and how they are combined.


The Letter finds that COVID-19 government supports have significantly mitigated the impact of COVID-19 on household incomes and debt sustainability. During Q2 2020, when public health restrictions were at their most stringent, gross income for the median Irish household fell by 1.7% compared to Q2 2019. By Q3 2020, when the first phase of restrictions began to ease, incomes were 3% higher than in Q3 2019.


The Letter notes that, while many households would have been eligible for pre-existing supports such as Jobseekers’ Allowance, the basic level of these supports is lower than that of supports put in place for COVID-19. It is therefore estimated that without government income supports, and in the absence of any other replacement income, median gross household income would have fallen by 20% in Q2 and 6% in Q3 2020.


The Letter’s findings indicate that income supports are most beneficial for lower-income households in terms of the contribution to year-on-year income growth. This does not imply higher-income households do not avail of these supports; rather, it means that the relative contribution of the supports to the gross income of higher-income households is smaller.


The Letter also sets out the impact of COVID-19 income supports on the debt sustainability of Irish households. Households with any type of debt, such as mortgages and/or consumer loans, saw a marginal increase in median debt-to-income ratios, from 60.7% of gross income in Q1 2020 to 60.9% in Q2 2020. However, this fell again in Q3 as incomes grew. Increases in the debt-to-income ratio for more indebted households (the top 10% of households by debt-to-income) increased from 342% to 376% of gross income. The Letter estimates that, without government income supports, these increases would be considerably larger, at up to 552% of gross income for the top 10% of households by debt-to-income.


Debt-service levels for mortgage debt only tend to be higher than for all debt. In Q2 2020, owner-occupier debt-service ratios increased to 14.8% of gross income for the median household, up from 14.2% in Q1. Without supports, median debt-service would have risen to 17.1% in Q2 2020. For high debt-service households, owner-occupier mortgage debt service increased from 33.6% in Q1 to almost 36.2% in Q2, before falling to 34.2% in Q3. Without supports, the Letter estimates that the debt service for these households would have increased to 58.6% of gross income in Q2, before falling back to 39.9% in Q3 2020.


Source: Central Bank of Ireland



 The full series of Economic Letters can be found here.


For the purposes of this Economic Letter, gross household income is the sum of the following sources of income at the household level: employee earnings, COVID-19 supports (PUP and T/EWSS wage subsidies), self-employed income, public pensions, unemployment payments, regular social transfers, and ‘other’ household income (which includes private financial transfers, gross rental income, income from financial investments, private businesses, and other sources).  Income taxes are not subtracted from gross income.


This Letter focuses on changes in median income. The median is the mid-point in the distribution of gross household income – that is, half of households have income above this level, and half below this level.


Debt-service ratios measure the amount of gross income used to service or repay debt.


Reamonn Lydon is Senior Advisor for Research and Analysis at the Central Bank. Brian Cahill is a statistician in the Income, Consumption and Wealth Division at the Central Statistics Office.