Commission claims elements of Budget 2013 were ’regressive’

Staff paper contends community employment schemes can be ’subsidised employment traps’

Minister for Finance Michael Noonan outside Government Buildings before delivering Budget 2013 last December. Photographer: Dara Mac Dónaill/The Irish Times

Minister for Finance Michael Noonan outside Government Buildings before delivering Budget 2013 last December. Photographer: Dara Mac Dónaill/The Irish Times

Wed, Apr 3, 2013, 14:02

Some of the major measures in the Coalition’s December’s budget have had a “somewhat regressive impact”, an internal staff report by the EU Commission has stated.

However, it has accepted that some other measures may have balanced this regressive effect.

The report is also critical of delays by the Department in Social Protection in extending activation and engagement sufficiently to the large numbers of people who are long-term unemployed.

It has also questioned the large resources being earmarked for community employment schemes which it has argued are weak job activation measures and, at worse, are “subsidised employment traps”.

The report, completed following the latest review of Ireland’s performance under the bailout programme, quoted from analysis by the Economic and Social Research Unit on what was described as a “subset of 2013 Budget consolidation measures”.

“ found that they have had overall a somewhat regressive impact, having reduced income proportionately for the lowest income quintile (20 per cent of the population) than for the highest income quintile.”

The report has also pointed out that there is an important caveat in that the ESRI model does not include all of the measures included in the Budget.

“There are reasons to believe that some of the measures left out of the analysis (such as capital gains taxes, the deposit interest retention tax and the change in the universal social charge for the elderly) have a more progressive impact.

“Moreover, the ESRI points out that Ireland’s cumulative consolidation efforts (since 2009) have had a progressive effect on income distribution.

In a context box, the staff paper noted there has been a sharp increase in income inequality since the economic crisis began.

“A key factor that may explain appears to be the large increase in unemployment. This underscores the importance of reducing unemployment as well as ensuring that the burden of the necessary fiscal consolidation is fairly shared, particularly that the most vulnerable people are protected to the largest possible extent.”

It concludes that the consolidation in Ireland has been overall quite progressive but that last two budgets have been marginally regressive.

The high level of unemployment is another major theme of the staff paper. It said reforms are progress in job creation, labour activation and further education and training for the unemployed. But it also stated that the reforms are “at times slow and not wide enough”.

The Action Plan for Jobs 2013 has been praised but the report is still critical of the lack of capacity to engage meaningfully with the long-term unemployed. It notes that the Intreo one-stop shops are being established but the staff note that it is still far short of nationwide coverage.

It welcome the systematic profiling of new entrants to the Live Register but continues: “Profiling has yet to be extended to the large number of long-term unemployed and is of little use beyond prioritising efforts. Yet, its use as the entry point for the engagement process makes it critical that it be extended.”

It says resources within the Department of Social Protection need to be redeployed increasingly towards engagement.

“The small number of case managers and Intreo offices so far means Ireland faces difficulties in widening the scope and increasing the frequency of engagements especially for the long-term unemployed.”

It also notes outsourcing engagement activities and other activation measures to private companies “provides an efficient way to complement Intreo’s services rapidly and temporarily”.

But it is critical of the fact that this process has “faced repeated delays”.

In another criticism of policy prioritisation, it has noted that some 55 per cent of some €870m spent on employment support schemes in 2012 were devoted to work programmes, in particular community employment.

“ serve a definite social purpose but have at best an extremely weak activation and back-to-work component and at worse trigger “subsidised employment traps”.

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