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Ireland's political and cultural magazine
— April – May 2013
T
HE Head of the IMF, Christine Lagarde,
drew attention to the issue of inequal-
ity at the World Economic Forum
in Davos. She pointed to the fact that
“excessive inequality is corrosive to growth; it is
corrosive to society. I believe that the econom-
ics profession and the policy community have
downplayed inequality for too long”. There is a
huge body of research on the causes of inequality,
the effects of inequality and the policy solutions
that are needed to create the conditions for more
equality. However, there remains a distinct lack
of political will to tackle the problem head on.
Last month the Central Statistics Office (CSO)
published the Survey of Income and Living
Conditions (SILC) data on poverty and
incomes in Ireland. On the basis of the adjusted
figures combined with the latest data, there is
some good news and some bad news. The key
issue though is whether the overall picture with
regard to income inequality and poverty in
Ireland has changed.
‘At-risk-of-poverty’ is one of the main poverty
indicators used. The ‘at-risk-of-poverty’ income
threshold stands at €,. The figure
was .% of the population ‘at-risk-of-poverty’.
A growing proportion of the population is becom-
ing ‘at-risk-of-poverty’. , people have
incomes at or below the ‘at-risk-of-poverty’ level.
One in seven (.%) of all those ‘at-risk-of-pov-
erty’ actually has a job. Children continue to be
the demographic group that is most ‘at-risk-of-
poverty’, with .% of all children (,)
falling into this category.
In , almost one quarter (.%) of the
population (,, people) experienced
two or more types of “enforced poverty”. This
covers access to essentials such as home heat-
ing, hot meals and adequate clothing. Over half
(%) of single parent households experience
“enforced deprivation”.
What social realities do these figures reflect?
The reality for many is declining income with
people generally finding it more difficult to make
ends meet or having to “go without”.
The Irish League of Credit Unions tracker
survey “What’s Left” found that over . mil-
lion people were left with € or less at the
end of the month after essential bills were paid.
The Commission for Energy Regulation reported
that over , domestic electricity users were
cut off in . There are now frequent reports
of children going to school hungry. Charities
across the country are reporting unprecedented
demand for their supports and services at a time
when their own budgets are being cut.
Other social realities include increasing levels
of emigration, homelessness and suicide. Many
of these have been exacerbated by the deterio-
rating economic circumstances that many people
find themselves in after five years of austerity.
These circumstances include a lack of employ-
ment opportunities; underemployment; pay cuts;
increased cost of living; and debt levels.
SILC provides data on income inequality,
which is measured through the gini coefficient
and income quintile ratio . The closer the gini
coefficient is to , the higher the level of ine-
quality, while a low score (closer to ) indicates
lower levels of inequality. According the latest
CSO figures (see Chart ), the gini coef-
ficient was adjusted downwards from . to
.. This was because of the incorrect treat-
ment (in some cases) of tax, income and pension
contributions.
Income inequality, therefore, did not jump
quite so high between and as was
previously reported. The gini coefficient fig-
ure for is ., which means there was
a slight reduction in income inequality. An EU
( Member States) comparison shows Ireland
slightly above the EU average (.). There is
a general trend toward increasing inequality in
the EU.
The quintile share ratio measures the gap
between the top % of income earners and bot-
tom %. The higher the number, the higher
the level of inequality is. The figure (see
Chart ) has also been adjusted downwards
from . to ., which means that the jump in
inequality from was not as high as previ-
ously reported. The quintile share ratio for
remained at ., which means that, using this
measure, the level of inequality remained static.
We are below the EU ( Member States) aver-
age (.). As with the gini coefficient there is a
general trend in the EU towards increasing ine-
quality using this measure.
It is important to remember that both of these
measures are designed to be independent of the
overall level of wealth and income in the coun-
try. This is useful when you want to compare two
different countries but it means that the gini coef-
ficient and income quintile ratio are limited when
we want to compare the same country during dif-
ferent time periods.
That’s why it’s important to examine income
trends more widely and over a longer period of
time in order to get a more holistic and accu-
rate picture of what is happening in relation to
Redistribute
from the top 1%
Broad inequality in Ireland is static and around the
EU average
news
sinéad pentony
Focus, if you can, on the 1%
income inequality. There is growing interest in
the study of the distribution of top incomes using
tax data. The World Top Incomes Database http://
topincomes.g-mond.parisschoolofeconomics.
eu is an invaluable resource which measures the
top income share (of the national income pie)
over a number of decades for more than twenty
countries.
The data for Ireland are useful, especially if
you break the top % down into the top %
and %. The data show us that the lowest share
(of the national income pie) for the top % was
.% in , rising to a high of .% in
. In this fell back to .%. The
top % had .% of the national income pie in
, rising to .% in and .% in
. This means that their share almost dou-
bled over a period of thirty years.
There is a growing consensus that the “big
divide” in a growing number of societies is now
less between the top, the middle and the bottom,
than between a tiny group at the very top and
nearly everyone else. The World Top Incomes
Database provides the evidence that shows this
divide has been growing in Ireland and many
other countries, albeit at different paces, over
the last number of decades. We need to focus on
the top %. Failing to do so means that we miss
the true impact of a change, which is described as
“the degradation of middle classes to the ranks of
the precariat”, by economist and
Prix-Goncourt-laureate novelist
Erik Orsenna.
What are the policy meas-
ures needed to start the process
of reversing the trend of wealth
being concentrated at the very
top of the income ladder? We
need a return to redistribution.
As the Secretary-General of the
OECD articulated, this is not with-
out its challenges as “…from the
mid-’s ... the reduced redis-
tributive capacity of tax-benefit
systems was sometimes the main
source of widening household-income gaps”.
What could be done to increase redistribution?
Some of the options include progressive taxes
that increase top income-tax rates, having luxury
rates of VAT and more effective inheritance taxes.
The restoration of the social safety net, based on
an EU-wide unemployment insurance system,
must also form part of the policy mix. There
is also a need for a change to public attitudes
towards tax avoidance and for global tax agree-
ments to be strengthened. The latter appears to
be gaining some political traction
at an international level, follow-
ing recent reports on the amount
of tax paid by some multination-
als. The OECD report Addressing
Base Erosion and Profit Shifting
highlights the need to ensure that
tax systems do not unduly favour
multinationals, leaving citizens
and small businesses with big-
ger tax bills.
A return to redistribution
must also be accompanied by
policy measures that address the
key drivers of inequality. These
include the financing of, and access to, public
services such as education and health; pay deter-
mination and collective agreements; incomes
policies that strike the right balance between
wages and profits; the regulation of financial
markets; and public ownership of wealth through
sovereign wealth funds.
The top 1% had
5.64% of the
national income
pie in 1977, rising
to 8.19% in 1995
and 10.5% in
2009
CHArT 1: GINI COEFFICIENT
CHArT 2: INCOME qUINTILE rATIO
