In the run-up to next week’s budget, we will be blinded with billions. There’s one big number we really should be thinking about, though: €20 billion. It’s roughly what the long-term effects of letting children grow up in poverty cost Ireland every year.
A recent study by the OECD estimates that across 27 euro zone countries, the average annual cost to the economy of childhood socio-economic disadvantage is 3.4 per cent of GDP. In Ireland’s case, however, the costs are higher than the average, at around four per cent of GDP.
This year, Irish GDP is likely to be around €500 billion, so we’re looking at a price tag in the region of €20 billion. To put that figure in context, if it were the earnings of a business, that company would be one of the richest in Ireland.
It’s twice what it costs the State to run the entire education system. And yet, it’s very hard to find a budgetary number-cruncher who ever mentions it.
Even if you don’t care about childhood disadvantage as a moral and political issue, it has an enormous fiscal impact. And that impact is bigger in Ireland than in other European countries.
The OECD study shows what similar reports have long demonstrated: that people who grow up in poverty have more insecure employment and lower earnings as adults. This means that they contribute less in taxes to the public purses.
How much less? In countries such as Finland, the Netherlands and Denmark, the loss is less than two per cent of tax revenue from working-age households. In Ireland, it is more than three times higher, at seven per cent.
Income tax receipts last year amounted to €34 billion, which means the loss is about €2.4 billion a year.
But that’s only half the story. On the other side of the equation, there are the extra costs in welfare payments associated with the effects of childhood disadvantage.
The OECD reckons that Irish working-age adults who grew up in poverty lose about €10 billion in earnings every year, compared with what they would earn if they grew up in an average Irish household
Here again, Ireland’s public finances take a much bigger hit than those of our European neighbours. On average, the effects of child poverty add about two per cent to government expenditure. In this country, however, the added cost is, at six per cent, three times higher.
The social protection budget was €24 billion last year. This would suggest the extra cost of benefits to adults who experienced child poverty is about €1.5 billion. So, between tax not taken in and benefits paid out, the fiscal impact is somewhere around €4 billion.
And that’s without counting the indirect costs. People who experienced poverty in childhood have much worse health in later life, adding to expenditure on healthcare, and are much more likely to end up involved in crime, adding to the costs of policing, justice and the prison system. It’s a reasonable guess that, purely in these very narrow fiscal terms, the loss to the Exchequer from the effects of child poverty on working-age adults is at least as large as the size of the entire Budget package to be unveiled by Michael McGrath and Paschal Donohoe next week.
It’s also worth asking how much an early childhood spent in poverty costs an individual. Just in monetary terms (and not counting all the psychological and social damage), it’s a very expensive business – and especially so in Ireland, where the effects of early poverty on later earnings seem to be much worse than they are in most other European countries.
The OECD reckons that Irish working-age adults who grew up in poverty lose about €10 billion in earnings every year, compared with what they would earn if they grew up in an average Irish household. This is €10 billion a year that those adults don’t have to spend on their own children. That’s why the effects of child poverty are passed on through the generations.
What’s so striking in the OECD’s figures is that Ireland is on the worst end of the European spectrum. The financial penalties of a poor childhood, for both the State and for individuals, are much heavier in this country than in the rest of the Eurozone.
Which means, of course, that those effects are not inevitable. They are the results of the choices we make – and we could make very different choices.
So, why don’t we? One of the reasons is that none of the calculations I’ve just outlined feature anywhere in standard accounts of the Budget, public expenditure, tax revenue or fiscal probity.
They don’t feature in reports of the Irish Fiscal Advisory Council or get factored into the Budget documents produced by the Department of Finance and Public Expenditure. And, as we know, what isn’t counted doesn’t count.
On his return to office, Taoiseach Leo Varadkar listed child poverty as one of the main “emergencies” facing the State and he took the very welcome step of establishing a special unit in his own department to deal with it.
One of the things he could do to make good on this commitment is quite simple and costs nothing: instruct his Ministers to include the fiscal costs of child poverty in their budget statements.
Those who advocate fiscal prudence insist that governments should not do things in budgets that will place uncosted financial burdens on future generations. Fair enough.
But that’s exactly what we currently do with child poverty: we impose its financial (not to speak of its human) costs on future taxpayers. Not only do we not account for that cost, we don’t even acknowledge it.
The current €20 billion hit to our economy is a result of decisions taken or not taken when today’s working-age adults were children. In proportional terms, it’s about equal to the annual loss to the UK economy from Brexit. If one of these is a crazy act of self-harm, so is the other one.
I have nothing against the bean-counters. I just think they should count all the beans – including the ones that so many kids have to live on and the ones the Exchequer won’t have as a result.