Pro-poor strategy needed

Yesterday's Irish Times advised that the new Minister for Finance, Brian Cowen, is adopting a "conservative" stance on the forthcoming Budget. No radical initiatives on tax reform or social spending.

At some stage in the coming months some airhead on the Government benches will mouth the cliché "steady as she goes". It won't do.

It is hardly necessary to note again the success of the Irish economy given the cacophony of self-congratulation that clogs the airwaves and the print media. But, for the hell of it let's acknowledge it again: the annual GDP growth rate from 1990 to 2001 was 6.8 per cent here, as compared with 2.5 per cent in Britain, 2.1 per cent in the US, 1.7 per cent in France.

And there has been an important social gain from that success as reflected in our unemployment rate. Once the highest in Europe, the unemployment rate here is now one of the lowest at 4.2 per cent (the pre-enlargement EU average is 7.7 per cent).

Poverty used to be determined by unemployment. The very fact that unemployment has declined so markedly suggests there should have been a substantial improvement on this score as well. Regrettably, that has not happened.

The Government has made a great play on the reduction in the level of "consistent poverty". Consistent poverty being a combination of low income and deprivation of some of very basic necessities, such as warm coat, sufficient food or adequate heating.

Fifteen per cent of the population lived in consistent poverty in 1994, now the level is around 5 per cent - or about 195,000 people. Isn't there something radically wrong when so many people lack such basic necessities?

Much scorn is poured on a measurement of poverty known as relative income poverty. Mary Harney, for instance, has scoffed at the idea on the grounds that, if everyone was a millionaire but some were billionaires, there would still be relative income poverty.

But if only billionaires could afford timely and adequate healthcare, it certainly would matter. As it would if only the children of billionaires could get into the better schools. It would also matter a great deal if the billionaires dominated the political arena, owned the media and set the agenda.

But there is another and more relevant point. It is that one in four Irish households live on incomes that to the majority of Irish Times readers would seem impossibly low - less than a weekly equivalent of €240 for a family of four.

Whatever you call that - consistent poverty, relative income poverty or anything else - this is a miserable threshold. And remember a great many people and families live on incomes lower than that.

Michael McDowell is of the view that dynamic societies have to have a measure of inequality. If I understand his position correctly, his view is that only where there is a strong monetary incentive will there be high economic growth and high economic growth benefits everybody, which means that inequality benefits everybody.

I confess that even if the assumptions underlying this argument were factually correct (notably that only where there are high incentives will there be strong economic growth), I would still be opposed to the idea of significant inequalities because of the distortion of power, influence and access that such inequalities create.

But that is an aside because the key factual assumption underlying Michael McDowell's argument is incorrect. As the 2003 annual report of Combat Poverty, just published, shows, Ireland has a relatively high level of income inequality as compared with countries such as Denmark, Finland, Sweden and the Netherlands, all of which countries historically have enjoyed high levels of economic growth.

Joseph Stiglitz, a former member of the Council of Economic Advisers during the Clinton administration, former chief economist and senior vice-president of the World Bank and Nobel laureate in economics, has argued for policies known as "pro-poor growth strategies" and that, at a minimum, is what Ireland now requires. And it is because of this that it is disappointing to read that the new Minister for Finance is adopting a "conservative" stance in the framing of the coming Budget.

Ireland has one of the lowest levels of social protection expenditure in Europe. As a proportion of GNP the Irish figure is 16.5 per cent as compared with the pre-enlargement EU of 27.3 per cent (in Sweden it is 32.3 per cent). Social protection expenditure includes expenditure on sickness, old age and disability and it relates to expenditure from taxation and from social insurance. Societies with high levels of social protection typically have low levels of poverty risk and vice versa.

So what we need is higher social protection expenditure, higher social welfare expenditure and greater equality in the areas of health and education. This certainly would necessitate higher taxation but what would be so bad about, say, a 2 per centage point rise in the higher levels of income tax? The economy was booming when income-tax levels were at that level previously, so what would be so bad about a reversion?