31-35 not 29 - Village Magazine

16 February 2016

POINTERS FOR ECONOMIC

EQUALITY

1. Jobs and long-term

Unemployment

The recovery in jobs is an important contribution to

addressing recent, recession induced, levels of eco-

nomic inequality. However, it is not the only contribution

required of the labour market. The key labour market,

and perhaps key public policy, issue for the next decade

will be long-term unemployment and the need for

resourced and strategic interventions to assist large

numbers of people getting back to work. The boom

proved that most of these people will happily work.

However, without active support, little of which is

currently being provided, these people are likely to be

trapped in long-term unemployment.

2. Fair Pay

Fair pay is usually seen as a low-pay issue. However,

there are fair-pay problems at both ends of the earnings

distribution. With one in ﬁve workers living on less than

the living wage, the challenge for many workers to make

ends meet remains difﬁcult. At the other end of the

labour market high pay has become more and more dis-

connected from the reality of decent pay, average

earnings, living costs and the appropriate rewards

employees should get for their service.

Policy aimed at addressing, and reducing, economic

inequality will need to focus on pay at both ends of this

distribution and pursue strategies to narrow the overall

distribution.

3. Welfare

The welfare system is the core mechanism for eco-

nomic equality. Social-protection payments provide a

safety net for almost all families and directly support

the living standards of a large proportion of our popu-

lation. The system dramatically alters the shape of our

income distribution and enhances equality via child

beneﬁt, illness and disability payments, unemploy

ment supports and old age pensions, among others.

As the recovery unfolds, there is a danger that wel-

fare will be deprioritised as the policy focus shifts

elsewhere. The experience of the last Irish recovery, in

the late 1990s is telling. In a few short years the poverty

rates of welfare-dependent households sky-rocketed

with, for example, pensioner poverty increasing from

5.9% in 1994 to 44.1% in 2001. Earnings increases and

income tax reductions ﬂowed to others and those

What percentage the tax-take needs to be

31-35

not 29

by Micheál Collins

2016 ELECTION

February 2016 17

Under 10,000

10,000 to 13,000

13,000 to 15,000

15,000 to 18,000

18,000 to 20,000

20,000 to 25,000

25,000 to 27,000

27,000 to 30,000

30,000 to 35,000

35,000 to 40,000

40,000 to 50,000

50,000 to 60,000

60,000 to 70,000

70,000 to 75,000

75,000 to 100,000

100,000 to 150,000

150,000 to 200,000

200,000 to 275,000

275,000 and over

17.21

% OF INCOME EARNERS BY GROSS INCOME RANGE (€)

2016 Revenue Commissioners Projection

Yellow bars highlight the

middle 20% of the distribution

Source: Revenue Commissioners

Post Budget 2016 projection

4.64

3.38

5.22

3.73

8.73

3.43

4.87

7.37

6.28

9.81

6.92

4.75

1.87

5.72

3.84

1.07

0.57

0.59

dependent on welfare slipped further and fur-

ther behind. It took some signiﬁcant welfare

increases in the early 2000s to address the

legacy of these decisions. It is important for

economic inequality to maintain the relative

value of welfare payments and increase them

in line with living costs and changes in earnings

elsewhere in society.

4. Taxation

There is an issue regarding the appropriate-

ness and adequacy of current Government

plans for the scale of the overall tax take, as set

out in the Spring Statement and Budget 2016.

While one can argue about how much or how

little tax needs to be collected to run the coun-

try, the realistic range sits somewhere between

31% and 35% of GDP. However, current plans

are for a tax take of around 29% of GDP; a ﬁgure

that is unrealistic and puts unnecessary pres-

sure on the appropriate provision of public

services across the state. Where these services

are under-delivered, it is those who are most

disadvantaged in society who suffer most.

There are economic-equality issues related

to the nature of public spending and taxation

changes that are planned. Taxation changes

focused on income, whether through USC

changes/abolition or changes to bands, rates

and credits, will by deﬁnition beneﬁt those with

taxable income; people who are predominantly

located in the top half of the income distribu-

tion. From the perspective of tackling, rather

than enhancing, economic inequality, fairness

in any structural reform of the taxation system,

or offsetting accompanying measures is

crucial.

5. Women

On average women are better educated,

brighter, and longer-lived yet are paid less and

are more disadvantaged than men. This points

towards structural problems that we need

aggressively to address. The gender-speciﬁc

nature of these inequalities is reinforced by the

fact that they spread right across the income

distribution.

6. Children

One in ﬁve children live in a household with

an income below the poverty line. The long-

term implications and costs of childhood

disadvantage are very high: multiples of the

costs associated with addressing these issues

now. The return on investing in addressing

these issues now is many times the return avail-

able elsewhere; or indeed any beneﬁt-cost ratio

threshold. Early Childhood Care and Education

programmes providing a free year of care and

education for children of pre-school age, school

meals in disadvantaged areas, adequate and

affordable childcare facilities and targeted

library services for children are just some of the

options available.

Dr Micheál Collins is Senior Research Ofﬁcer at

the Nevin Economic Research Institute (NERI)

and an adjunct Professor of Economics at

Trinity College Dublin.

The return on investing

in addressing childhood

poverty is now many

times the return

available elsewhere