Budget must not ignore plight of the working poor


ANALYSIS:IN THE run-up to the most swingeing budget of the 21st century, rarely a day passes without someone warning that “the financially vulnerable” must be protected. This sentiment is laudable. Every civilised society should take steps to protect its weakest members, writes SUZANNE KELLY

The issue, however, is not with the sentiment; it is with the definition of “the financially vulnerable”. Who exactly are “the financially vulnerable” in Irish society, and what criteria should be used to qualify for inclusion in this category?

The reason I raise this point is because many people automatically assume “the financially vulnerable” to be unemployed people receiving social welfare payments. My contention is that while there are many financially vulnerable people on social welfare, there is another group, far more vulnerable, who receive neither social welfare nor public recognition of their plight.

I call this group “the impoverished workers”. They have become the invisible victims of the recession, as they receive scant media attention. They are usually married couples with a number of children, and are either on a single industrial wage of €35,000 per annum or self-employed. A cursory examination of the facts shows that many in this group are financially worse-off than unemployed people on social welfare.

This is because social welfare benefits are not just weekly cash payments for the unemployed to keep the wolf from the door. Cash payments are only one ingredient of the multiple benefits on offer from the State.

Many social welfare recipients are entitled to a range of benefits including a monthly rent allowance, and a medical card allowing free GP access and the cost of medicines up to €1,200 (and rising) per annum. In addition, the medical card acts as a gateway to numerous other benefits such as free school transport or exemptions from exam fees (Junior and Leaving Cert). The medical card holder is also exempt from the 2009 income levy and health contribution.

The impoverished workers, whose only income or benefit is their after-tax income, are forced to meet all of their financial commitments out of a limited pot, without State assistance. A simple contrast between the finances of a couple in receipt of social welfare and an “impoverished worker” couple shows the poorer to be the “impoverished worker” couple – waged or self-employed.

Considering the worse plight of the impoverished worker, it is amazing that this group does not receive more public and media attention. It is also extraordinary that public policy has forgotten them.

This is probably because it is difficult to measure the worth of non-cash social welfare benefits such as a medical card. It is also hard to get a snapshot of all the available benefits.

People like me look at tax exemptions, a school principal looks at the free books allowance, the doctor looks at the number of medical card holders, and the recipient looks at his cash amount. There are a plethora of benefits and exemptions which no one has cohesively valued. More importantly, they are provided in the absence of any definition of the vulnerable or identification of their needs.

The Government response to the vulnerable has been indiscriminate: a full medical card here; a doctor-only card there; additional social welfare benefits here; or higher tax exemptions there. The interaction of all these hotchpotch actions has created a deformed system, riddled with anomalies.

For example, take the removal of mortgage interest relief for tax purposes, in 2009. The intention was to cut a tax relief. The effect was to create an entitlement to a medical card because of the way medical card entitlement is decided by relying on after-tax income and a comparison with expenditure including mortgage payments.

Comprehensive research needs to be done to establish the public definition of the financially vulnerable – all the relevant information must be gathered. The findings can then be relied upon to guide public policy in the right direction, once the anomalies have been unravelled. To do this properly, buried information on income and benefits needs to be exposed. In a perfect world, tax and social welfare reporting, including the awarding of medical cards (often gateways to further benefits and exemptions) should be combined in a user-friendly format. In this paradise, the computer would spit out lists of income, benefits, exemptions and identities.

But do not get too carried away: the chances of this happening are remote. Even if there was a will to do it, a common database for tax and social welfare is 10 years away.

In the meanwhile, can anything be done? Speaking to an insider recently, I concluded it would be possible to obtain this information if the Central Statistics Office could be given the specific brief, with the sanction of the Department of Finance, the relevant computer programmers and help from the Revenue Commissioners, and the Departments of Social and Family Affairs, Health, Education and the Environment.

The information could be gathered in less than a year. A small technical group (not representative of any interest group) should be appointed to analyse forensically the findings so as to inform the framing of public policy on the financially vulnerable in society.

The forthcoming budget will probably be one of the most divisive in living memory. Any proposals to cut welfare benefits must be part of a longer-term vision for the poor in Irish society so that any short-term pain will have a context. Budgetary measures will provide for cuts in public expenditure. Among the cognoscenti, it is generally accepted social welfare cash benefits may be cut by 5 per cent. Child benefit will probably be cut where:

Means-testing is a hugely expensive option;

The taxing of child benefit is a nightmare to implement, due to the absence of a common database for revenue and social welfare;

Tax deduction at source creates political jitters where the tax will have to be repaid to those who need child benefit the most.

The cut could be 10 per cent, although a greater cut of 20 per cent has been advocated by the Economic and Social Research Institute (ESRI), where it argues social welfare rates should be frozen. In the absence of the research requested here, it is impossible to assess rigorously the ESRI proposal to cut the child benefit by 20 per cent instead of any cut in social welfare rates. It seems to push the impoverished workers into further poverty.

The announcement of urgent and formal research to identify the financially vulnerable in Irish society with the object of shaping better future public policy indicates a serious intent to deal with poverty. This intent might make any cuts much more palatable for those canvassing for the poor, particularly where they have been clamouring for this analysis for years. The cause of impoverished workers cannot continue to be ignored for the following reasons:

To leave things as they are generates tension between impoverished workers and those in receipt of social welfare. There were mutterings, in September of this year, among hard-pressed working parents when some of the children of social welfare recipients were told they qualified for book allowances. Social disharmony, like this, must be tackled.

A social welfare package where the cash and benefits exceed wages will stop potential staff from returning to work when the economy lifts. Recently, Ikea, the Swedish furniture giant which opened in Dublin, said it had difficulty engaging employees despite the recession, as the social welfare package was, in some cases, more advantageous than wages. This is dangerous to the wellbeing of the economy.

With the move to introduce a wider tax base, as promoted by the Commission on Taxation, exemptions from, say, water rates or bin charges for those in receipt of welfare skew the system further against the worker, on whom top dollar is always levied.

The best way to advance the debate on protecting the financially vulnerable is to identify the information to define the financially poor in Irish society. In the absence of this information, phrases such as “the vulnerable”, or “the inviolability of all social welfare payments” and “the working poor” become political footballs to be tossed around, in a meaningless way, at elections or budgets.

Suzanne Kelly is a barrister specialising in taxation

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