Recession to cause sharp rise in social spending - OECD

Wed, Sep 22, 2010, 01:00

GOVERNMENT SPENDING on social expenditure is projected to rise sharply due to the recession and will account for one-fifth of the country’s economic output by 2011, according to an OECD forecast.

But there is a real danger that the middle classes will benefit most from the welfare state rather than more vulnerable groups in society, according to a new paper by the NGO Social Justice Ireland.

Dr Willem Adema, senior economist at the OECD social policy division, told a conference on the Future of the Welfare Stateyesterday that a rapid drop in gross domestic product and rising unemployment would increase social spending in Ireland to 20 per cent of gross domestic product by 2011, up from 16.2 per cent in 2007.

He said this would bring Ireland close to the average level of spending on social services and welfare services for OECD countries, which stands at just above 20 per cent. He said this was a “very dramatic” change in a few years and warned that cuts in social spending were inevitable due to the difficult fiscal situation.

“Policy-makers need to sit down and prioritise spending in the areas that will achieve the best results. For example if you take spending on children, it has been proven investment works best when it is targeted in the 0-5 years age,” said Dr Adema.

Social Justice Ireland director Dr Seán Healy said the welfare state faced huge challenges due to the crisis and warned there was a danger the poor would end up being bypassed due to necessary changes in coming years.

“Poor and vulnerable people suffered most in the current crisis. They had least responsibility for what happened. They must not be the ones to suffer most in the period ahead,” he said.

Dr Healy said the middle classes may be reluctant to support redistribution in the recession even though they themselves benefit hugely from the welfare state. He said the Government had failed to share responsibility and deliver wellbeing for all during the crisis, citing the example of taxpayer support for Anglo Irish Bank.

UCD professor of social policy Tony Fahey warned the welfare state could well be regressive rather than progressive in the future due to the prevalence of “tax breaks for social purposes” for health, pension and housing.

“Tax breaks for social purposes are of benefit only to those earning taxable income and usually the more taxable income they earn, the greater benefit they can derive from those measures,” he said.

Green Party Senator Dan Boyle said there was no easy solution to the fiscal problems facing the country and no magic wand could solve a situation where the State had to borrow 40 per cent of social welfare spending.

He said the Government should close tax reliefs for high earners and consider a national tax on speculative transactions.

Labour spokeswoman on social protection Róisín Shortall said Government policy needed to focus on supporting public services and providing income support.