Wednesday, 7 November 2012

The importance of secondary benefits

Aoife Ní Lochlainn: Today, TASC appeared before the Oireachtas Committee on Education and Social Protection to discuss our proposals for Budget 2013.

In our pre-budget document Closing the Gap: TASC’s Proposals for a More Equitable Budget, we propose a ratio of tax measures to spending cuts of four to one. This includes no cuts in capital expenditure or social welfare payments. You can read our full proposals for tax and spending here

Any savings made in current expenditure must not be made through further cuts in social transfers of through cutting services which impact on vulnerable or low income groups.

Last year’s budget introduced a range of cuts in health and in social protection which targeted vulnerable or low income groups. In particular, the focus on the cutting of so-called ‘secondary’ or ‘non-core’ social protection payments, left many families significantly worse off.

Many secondary benefits are designed to reflect the fact that there are groups of people for whom accessing work is more difficult.

The barriers to meaningful work are both visible and invisible to those who do not face them. These groups have specific needs which must be addressed through the development of appropriate policies and supports.
One such group is lone parents. Lone parents often face challenges that other people of working age may not face or understand. The general lack of proper affordable childcare facilities impacts on most parents, but the negative impact is much more acute for lone parents. The vulnerable position of these families can be seen in the fact that according to EU SILC data for Ireland, in 2010, lone parent households experienced the highest rate of depravation, at 49.8 per cent.

In a study of Budget 2011, TASC found that the category most negatively affected by the budget was the ‘single with children’ group. Budget 2012 imposed further harsh cuts through focusing on secondary benefits and the restriction of certain schemes. In a recent ESRI study on the Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012, it was found that in Budget 2012, there were “greater proportionate losses for those on low incomes . . . as against those on the highest incomes.” (ESRI 2012: 55)
It can be quite difficult to understand the impact of cuts in secondary benefits on certain groups, as many families and individuals will be in receipt of a number of payments and when these are cut, the cumulative impact on recipients can be quite severe.

In order to help show some of the possible impacts, we have compiled two tables below to show the effect of lasts year’s cuts on two types of families. As can be seen from these tables, last year’s budget brought a significant loss of income to many lone parents. TASC is therefore calling for no cuts to social welfare payments, primary OR secondary in Budget 2013.

Examples of the effects of Budget 2012 on lone parents and their families

1This was discontinued for children aged two and three in Budget 2012
2 Contribution towards rent for those on rent supplement was increased by €6 a week.
3 Contribution of €25 per week for those doing a VEC course and availing of VEC provided child care, introduced in 2012

1Fuel allowance for smokeless fuel (€23.90 a week in 2011) was abolished in September 2011 and replace with the fuel allowance for non-smokeless fuel at €20 per week.
2 Child benefit for the 3rd child was reduced to €148 in Budget 2012
3Abolished for new claimants in 2012 and replaced with €20 top-up
4The payment for those on CE was abolished where they were claiming under One Parent Payment


Anonymous said...

Aoife, you've grossly understated the value of the package enjoyed by CE claimants in 2011.

You count the relatively small Rent Supplement contribution as a cost, but then totally neglect to include the much larger Rent Supplement payment as income. This alone could be worth in the region of €11k per annum.

You also fail to account for the value of the USC exemption and the special low rate of PRSI applied to CE payments (i.e. 0.5% as opposed to 4.25%).

Finally you make no attempt to value non-cash benefits such as a medical card. Given that you appear to have sufficient data to calculate childcare costs very precisely as €9360 (methodology?), you should be able to estimate a lower bound for the value of medical card. The cost of private insurance to cover equivalent medical fees could provide a guide, but I would confidently venture that the value would no less that €1000 p.a.

So overall your estimate of €35,580 (already above average earnings) is out by about a third, i.e. in order to enter the workforce proper that 2011 claimant would have needed to secure a job paying €50k!

Such extraordinarily generous rates of welfare were simply unsustainable. In addition, such packages made it very unlikely that claimants would ever re-enter the workforce proper. Even at the height of the boom, there were very few jobs offering a €50k starting salary. Now, such well-paid jobs are as rare as hens teeth.

Anonymous said...

Also, Aoife, why have you classed childcare costs as a "deduction" when calculating net income?

There are plenty of other costs that are incurred when working (transport, clothes, lunches etc.) yet no one considers these a "deduction".

Neither does anyone consider accommodation costs a deduction when arriving at their net income.

This sleight of hand has the effect of much reducing the apparent net incomes quoted and hence much increasing the percentage income reduction in 2012 (these should be circa 15.7% & 40.25%, as opposed to 22.36% % 57.35%, a very substantial difference).

Brian Woods said...


The quandy of state revenues being in excess of taxation cannot be solved. All attempts to get the sums to add up will result in a reduction in living standards and an unempoloyment rate in excess of 30%. I would have thought that this was obvious. Clearly it is not. Anyway, no Irish politician (who wants to keep their snout in the taxpayer's pocket)would countenance any significant fiscal re-structurings.

Just say this out loud 3 times -

"All TDs (and ministers)and all senior CSs take an immediate 60% pay cut in incomes and abolish all their allowances. All state pensions are reduced to 400 pw. IMMEDIATELY!"

Force the gov to bring in an emergency budget: get the Grannies of Ireland to organise a week-long pots-and-pand protest in every city, town and hamlet. No one messes with angry grannies!

All (without exception) Irish citizens must lodge an annual tax return:

All income tax write-offs are cancelled:

Introduce an 85% tax on all gross incomes in excess of 120,000. No pay your Irish income tax - you lose your passport (they're not a right - they're a concession):

At least you would be honest.

How many pages did that take?

If the total saving came in at 50 mil per week, we'ed be in a somewhat less unfavourable fiscal situation. Not going to happen is it? No! Thought not. Keep with the PR.

Martin O'Dea said...

Jeez Brain Woods, the tone and certainty of your posts are pretty unusual. I worry that they are disengaging debate in one of only fora available for progressives and progressive economists in Ireland, surely there are other fora where these posts will make more sense

Anonymous said...

Jeez Martin O'Dea...
The only reason why I log on here is to read Brian Wood's comments. While I do not always agree with the sentiment or argument propounded I do agree with his right to engage in lively debate. How stimulating would progressive economy be if it is just a forum for left leaning commentators to pat each other on the back?

Martin O'Dea said...

Fair point Anonymous>.
I guess my point is that engagement and debate is great - it is complete confidence in one's own opinion and dismissal of others that can be difficult to engage with

Brian Woods said...

Hi Martin and Anon. Thanks for taking the time to read my 'rants'!

1. I have no political agenda. Well, apart from insisting that state revenues MUST equal state expenditures (the day-to-day ones). This is the sine qua non for any democratic state. I realise that this is an impossible wish. But - "events dear boy, events!"

2. The 'bollox' that I encounter on TV, radio and in print (about our 'fiscal situation') is nauseatingly inadequate, ill-informed and in some cases pure ideological pap.

3. Its the math: an arithmetic trend will always be crushed by a geometric one. How is this SO DIFFICULT for allegedly intelligent folk to understand? You can only 'grow your economic activity in a manner consistent with the limits of the attributes of a physical system. Debt however, grows geometrically completely without any inputs. Eventually (to-day) the debt burden is so great that it MUST be Jubileed. The alternative is poverty and subsistence living for the majority.

I have formed the opinion that the owners of this site (its like a cemetry with lights!) inhabit some region of a continuum between Mendacious Knaves and Clueless Twits. They can decide which.

In the name of Issa of Nazerath - DO THE MATH!!!

3. Our economy is in Regression (going backwards). Its probably at mid-1990s level - and slipping. The decline cannot be halted, but it could have been slowed. But our Fearless Ones in Leinster House have shirked their responsibilities to the citizens of this state - again, again and again. So expecting any reform or whatever, is simply attempting to wish-away history.

The current 's**te' about a Property Tax is a good example. What in Issa's name are these clueless oafs babbling on about? Another tax on waged labour? Its economic lunacy. You tax (as in VAT) the transaction of the property. You impose higher taxes on rental income, interest income and capital gains. Leave wage labour alone. Except you want an un-employment rate in excess of 30%. Do you? Do you actually, really, truely have any understanding of the economic impact of an additional 2 billion labour units (the human kind) into the global economy? Labour units equipped witn the latest IT and manufacturing technology. I doubt it! But your welcome to prove me wrong.

"TASC! Your site is brightly lit, but are there any sentient beings at home?"

Jeeze those anti-human access words are illegible. Is this a cunning trick to deter posters? If it is, it sure is successful!

Martin O'Dea said...

I think I agree with many of your arguments against the deflationary economic policies being pursued - you will see an unbelievably long and frustrating argument against here since 2009 about
There is one point we would disagree fundamentally from what I have seen, as things stand we are staring at unsustainable growth (oil etc) but this does not include rapid technological advances and the ability/likelihood of obviating many difficulties and opening the floodgates on productive potential

To balance things out though - I am on your side when it comes to the type two words thing

Brian Woods said...

@Martin: " ... but this does not include rapid technological advances and the ability/likelihood of obviating many difficulties and opening the floodgates on productive potential."

This scenario of technological progress is a possibility - but one which requires a paradigm shift in both economic thought and behaviour - firstly at political level, then amongst the population. It means that investment will have to shift back to productive enterprises, away from financializations. I cannot see this happening. It might, but I am deeply pessimistic.

I rate this paradigm shift as improbable because we have endured at least five significant economic shocks since 1970, and no real reforms have emerged. Plenty of PR guff, but no real substance. Nothing learnt!

So, it is business-as-usual. Just look at the proposal to deduct-at-source Property Tax!!! Lets see how far this one goes. Perhaps it will end up in the Supreme Court as it is at bottom, an income tax, not a property tax. I hope so. The proposal is akin to asking all income earners to pay motor tax even though they do not own a car. You argue that they do avail of a lift in a car from time to time - hence that qualifies them as car-tax payers. It beggars belief.

Martin O'Dea said...

The exponential (and it is actually exponential not the 'a lot' as we hear misinterpreted a lot by our political friends') growth of technology brings a future, an immediate future full of potential destructive technological advances will perhaps force our hands into action here - and it is probably a time for a new generation of people to frame a system that facilitates, the likes of nano-tech, robotics, 3-d printing, etc