Social funding must rise to reduce poverty

The Government will have to increase spending on social protections such as unemployment benefit and the old-age pension if it wants to reduce relative income poverty in Ireland, a new report from the ESRI suggests.

However, funding a Danish-style welfare system would require at a 10 per cent increase in income tax.

The study, published today, confirms that Ireland has the highest level of relative income poverty in Europe with 21 per cent of the population living on less than 60 per cent of median income in 2001.

Median income is the midpoint on the income scale, with equal numbers on greater incomes above and on smaller incomes below. In 2001, a single person earning less than €150 per week was said to be in relative income poverty.

Moreover, relative income poverty has increased in Ireland since 1995 in contrast to most European countries, including the UK, Portugal and Greece.

The report, Why Is Relative Income Poverty So High In Ireland?, found that differences in age and employment profiles, household composition and single parenthood did not explain much of the variation between member-states. Rather, the disparity was linked to contrasting tax and welfare regimes in Ireland and the EU.

Prof Brian Nolan, a co-author of the report, said relative income poverty was now "a key indicator at EU level", measuring "risk of poverty" rather than absolute levels of poverty in member-states. While it was up to the Government to decide whether or not to tackle relative income poverty, he said, "we do have to decide what sort of socio-economic model, what sort of society, we want to end up as".

He said social welfare recipients had seen "real improvements" in their living standards in recent years. But this had not stopped them from lagging further behind the rest of society in terms of relative income poverty.

The report found that the imposition of a "Danish-type" social welfare system in Ireland would have a "very substantial" impact on reducing the number of people at risk of poverty.

If no other economic indicators changed the reduction in relative income poverty would be in the order of 7 per cent, bringing Ireland to below the EU average for "poverty risk".

But funding such a welfare system would lead to an increase in income tax rates of 10-11 per cent.

The report noted that Ireland spent least in Europe in 2001 on social protection as a proportion of GDP at 14.6 per cent compared to an EU average of 27.5 per cent.

The study also highlighted differences in spending priorities with 43 per cent of social protection spending in Ireland going to healthcare compared to just 24.8 per cent to the elderly and 5.2 per cent to disabilities.

In contrast, Denmark apportioned 38 per cent of its social protection spending to the elderly and 12.5 per cent to disabilities.

Were a Danish-style welfare system to be introduced in Ireland, the report said, both the old-age non-contributory pension and the carer's allowance would rise from about €93 to €129.17 a week, and both disability benefit and unemployment benefit would rise from €89.52 to €194.13 a week.