On the issue of PRSI, who is trying to scare us and why?

Mon, Sep 17, 2012, 01:00

BUSINESS OPINION:WHEN SOMEONE goes to the trouble of leaking something twice, it is probably worth asking why. The release to this newspaper last week of the KPMG review of the social protection fund followed several stories over the summer presaging its apocalyptic findings.

The earlier stories focused on the near-term deficit in the fund of €1.8 billion this year, which will rise to €2.2 billion by 2016.

But with the full report came the eye-watering figure for the cumulative deficit that will arise over the next 55 years if nothing is done. It will be €324 billion or twice the national debt.

It’s scary stuff and the question worth asking is: who is trying to scare us and why? The finger certainly seems to point at Joan Burton’s Department of Social Protection and a crude attempt to win support for increases in PRSI in the coming budget.

If that is the case, then it indicates the fight over PRSI between the Coalition partners promises to be as bruising as that of last year. Both have a lot at stake. Fine Gael’s positioning of itself as the natural party of business is on the line, as is Labour’s credibility as the main party of the left and protector of the disadvantaged.

The problem is that there are really only two solutions to the hole in the social protection fund: higher PRSI or lower benefits. PRSI increases are bitterly opposed by business as a tax on work and job creation, while lower benefits will be unpalatable to Labour’s core support base.

The budget is still some way off and a compromise along the lines of the one reached last year, which saw some tweaking of PRSI but not big changes, may still be possible. But then again, as with many other issues, the wriggle room for compromise fades with each budget and the time for a tough decision may be at hand.

Joan Burton certainly seems to think so, if her comments over the summer are anything to judge by. “It is clear to me that something has to give,” she said. “We can either make a decision as a country to reduce the level of benefits that we wish people to have or else we can make a decision to properly fund these benefits both now and into the future.”

But the KPMG report, despite its dire predictions, is is not necessarily some sort of silver bullet for Burton.

It recommends a cut in benefits – or, to be specific, linking pension increases to inflation rather than wages – as one possible solution. And, depending on your point of view, it highlights either the progressive nature of PRSI or else its damaging impact on entrepreneurship and job creation.

“Those on the lower part of the income distribution, those with shorter contribution histories and the self-employed” get the best value out of their PRSI payments, while “those on the higher end of the income distribution generally get back less than they pay in”, according to KPMG.

It is not quite a clarion call for some further soaking of the rich, but there probably is enough in the report to bolster Burton’s case for trying to get employers to shoulder the cost of some of the benefits currently paid out of the fund, such as sick pay.

Ibec – whose members claim to account for 75 per cent of private sector employment – is alive to the danger.

Last Thursday the incoming president of Ibec, Paul Rellis, told the Taoiseach and Minister for Jobs, Enterprise and Innovation Richard Bruton that Ibec really had only one request in respect of the budget, which was that there should be no taxes on work.

“Business has the capacity and ambition to create the jobs this country so desperately needs. The single most important thing Government can do to help us achieve this aim is to refrain from adding to the costs of employment. Governments can’t create jobs, but they can create the right conditions,” said Rellis. Read this as meaning “leave PRSI alone”.

The Taoiseach responded in kind, and, in among the various references to “making Ireland the best small country”, he managed to send a clear enough message that Fine Gael was determined to defend its pro-business credentials. “Government wants only one thing from enterprise, from the members of Ibec: we want you to be successful. We know that governments don’t create employment. Growth, employment and resources are the products of successful businesses and entrepreneurs,” Kenny told the Ibec president’s dinner.

Game on, Joan Burton.

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