How does a pay cut affect the Taoiseach?

Yesterday Brian Cowen opted for a 6% pay cut which is reduction of almost €14,000 from his current salary of c. €228,000 meaning he will have to survive this crisis on €214,000 p.a.

The interesting thing is that gross and net figures are different this year, we were on 4FM with Eamon Keane and this point was raised so we did the figures, taking a calculation from 2010 on a wage of €228,000 versus the situation next year on the reduced amount.

This year would have seen monthly take home pay of €10,544 per month (4% health levy, 4% PRSI, 6% income levy [on salaries over €174,980] factored in), the net pay in practice varies as PRSI ceilings are hit but if you take the full year net and average it out we get the first figure €10,544.

The gross pay of €19,000 in reality is kind of pointless because anybody paid by taxes is a tax consumer to begin with so it would make better sense for them to pay no tax at because it just creates excessive book keeping without any gain in the process (people who are paid out of taxpayers money should probably just be paid net amounts to simplify the system).

The point being that you have to look at net pay, in particular when the person is a primarily a tax consumer.

This years ( calculator) net income will be €10,076 which is a reduction of 4.6%. That happens because you have a universal charge of a flat 7% instead of the progressive income levy. So a gross 6% wage drop doesn’t actually turn into a 6% difference on the bottom line rather its about three quarters of that.

The €13,680 pay cut, which you’d think would be over €1,000 per month of a difference is closer to  €470, less than half that amount on a net (take home) basis.

The full package for a Taoiseach is not really accounted for in wages. Any comparison of public/private remuneration to date (including the very well researched 2010 paper by CSO staff) has never included the value of the pension – and that goes from the lowest pay grade right to the top. However, that isn’t really the point, the point is that in taking a €14,000 wage cut our Taoiseach actually only sacrificed half of that amount, only in Ireland….

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