Mr. Nat O'Connor:

I thank the committee for the opportunity to present our ideas about the budget and a pre-budget audit. TASC is an independent, progressive think tank which promotes equality, democracy and sustainability through evidence-based policy analysis and recommendations. In our recent budget analysis and in previous budgets we discussed the issue of an economic audit and an equality audit as being important components of the budget, and therefore I welcome the proposal for a more comprehensive system of pre-budget auditing and echo many of the comments made earlier by Dr. Healy.

The reason TASC has a budget proposal is because we are concerned about the issue of economic inequality in this country. During the boom times Ireland had a persistent level of economic inequality and a gap in society in terms of income and wealth. With a series of austerity budgets, there is a risk of that gap widening.

We know that when we go into auditing, it is not just about income or wealth in cash terms. Many cuts to public services have a disproportionate effect on people on lower incomes or those who are vulnerable and, as a result, we would expect an auditing process to take account of the cash equivalent value of public services. People suddenly have to pay a fee for a service they did not have to pay previously or they see the reduction in services they now have to pay for out of their own pockets. That is a doubling of the effect on low income households. We are very conscious that it is not just about measuring income disparities but about the wider economic inequality which must be measured in terms of the value of services to people.

In that context we put forward our proposals. A nine page document was circulated to the committee. That is based on a large 50 page document which is available on our website, and in turn that is based on wider economic literature and a great deal of work TASC has been doing in recent years.

Our concern with economic equality is now being echoed across the economics literature. We have seen reports from the OECD and even the IMF which refer to the importance of equality within economic systems, that equality was a factor leading up to the economic crisis, and the need to factor in issues of equality, income and wealth when seeking to rebuild economies in the current context.

In terms of our analysis as we lead up to the budget, our focus has been on the need to examine the tax system. The remit of the committee is education and social protection, but we cannot talk about our welfare system or whether we have a welfare state unless we examine the overall balance of tax and spending.

In that context, as members will have seen in the proposals circulated, TASC favours a 4:1 ratio in terms of tax versus spending cuts. I echo what Dr. Healy said in that the troika has made it very clear that there are options in terms of how we choose to go about repairing the deficit. There is no doubt we must close the deficit, but we have options.

In our proposals, in terms of the economic audit, we have drawn on the literature on what taxation is least damaging to job growth, and in terms of our equality audit, we have focused on the measures that are more likely to have the effect of reducing income and wealth inequality. For example, we have looked at taxes such as capital acquisitions tax, or inheritance tax, as it is known, which do the least damage to the economy and to jobs because we are taxing wealth. Likewise, taxes on higher pay are less likely to damage job growth than taxes on lower pay.

In particular, in recent years we have been developing our own equality proofed property tax model. A property tax could be an important form of funding for local government but we argue against waivers because we must have the most robust tax system possible bringing in the maximum income. A fairer system would be to have deferred payment on an ability to pay basis which would protect not only low income home owners but also those on higher incomes who may have very high mortgage or child care costs and would be permitted to defer payment over time.

We have allowed for 25% deferrals, because if one has a deferred payment system one can be generous in terms of giving deferrals, whereas if one has waivers they can spread over time and they undermine the tax base. We have put that forward as an example of our thinking in terms of how one might both equality-proof on the one hand, but also balance the need to maximise revenue. Again, the auditing process involves balancing the trade-offs that are involved in any new tax proposals.

We regard the triple lock the Government has set for itself in terms of not cutting pay, not raising income tax and not cutting welfare as possibly unsustainable. There is a need to protect social welfare for those on low incomes and for vulnerable groups, including secondary benefits. Again, in the analysis there is often a focus with equality-proofing of just looking at primary benefits and seeing what basic income level people have on the basis of their core entitlements. Many secondary benefits are tailor-made for vulnerable sections of society who have particular needs. In turn, we feel there has not been sufficient analysis of the effect of cutting back not only on secondary benefits in terms of amount, but also in terms of entitlements. People who used to be entitled to a certain payment are no longer entitled. We have seen those kinds of entitlement changes affecting lone parents in particular. There is an analysis of that issue in the full document.

Other than protecting those on low income and vulnerable groups, we would argue that everything else needs to be on the table. At the same time, overall, other goals must be brought into the equation. It is not just about closing the deficit but we also need to look at jobs. The other half of a social welfare system is how it not only looks after people’s income at a time when there is unemployment, but also prepares people to go back into work. That is a feature of most other welfare systems across Europe.

There needs to be a protection of investment by the State. We call for a €4.5 billion investment fund, which again is not just focused on critical infrastructure that will lead to job growth in the long term, but also on the skills base of those who are unemployed. We know many people have left construction work and will not be able to find employment in that sector for the foreseeable future and they need a social welfare system that involves training aspects so they can go back to work.

In the context of social protection, this country has a particularly low tax base. Although there is a balance between tax and cuts, Government projections are for this country to remain an extremely low-tax country. At the same time it is intended to maintain tax breaks that even the IMF called tax benefits for richer sections of society, such as the pension tax breaks. In that context, our social insurance payments are the lowest in Europe. They are half the European Union average. There must be a strong focus on our social insurance system, both the amount that is paid by employees and employers but also what is the role of our social protection system and the Social Insurance Fund.