Dr. Tom McDonnell:

I thank Deputy Moynihan for his excellent questions.

I agree with Dr. Healy's comments. In terms of all social welfare payments, the idea is that you would be uplifting the entire system. It would not be only the welfare payments, but the income thresholds and wage minima. Everything would be uplifted. The concern is if that if welfare rates increased but the national minimum wage, tax credits or the tax threshold did not, there would be issues around replacements rates, potentially. Across the entire system all welfare rates, income thresholds, tax credits, tax thresholds and so forth for the USC and income tax would go up at the same percentage level and that same percentage level would be linked to average wage growth.

As pointed out by Ms Murphy, there is still a process of getting to the benchmark that you are trying to achieve. For some rates, you may already be there and so you may need less than the headline amount, but for others cases there needs to be a process of catch-up and that process of catch-up should happen over a very short period of time, certainly no longer than three to four years. There are a lot of other benefits as well. For example, this gives household certainty. Looking ahead, households on welfare, the minimum wage or whatever would know that wages will probably in most years grow faster than inflation. That means their cost of living pressures should not increase. It is also distributionally neutral so indexing to wages means that income inequality will not increase, by and large. In terms of Government spending as a percentage of economic output and also taxes as a percentage of economic output, it is fiscally neutral as well. Whereas it is true that non-indexation does lead to a better fiscal outcome, that is before you have made thead hocincreases to the different welfare payments that have been chosen for a particular year. It also depoliticises welfare payments to a certain extent.

In terms of the question as to whether there are potential negatives, the only negative that comes to mind as being potentially significant is that it reduces policy flexibility in other areas. For example, there are alternative ways of reducing the cost of living such as, for example, by proving free and affordable child care, free public transport or some other policy scheme. That reduces the flexibility, but that is all it does. It does not make the fiscal space considerations unsustainable. Looking over the very long term, where the working age ratio may decline over time, then the situation could be different. That is decades into the future and it can be compensated for through one-off adjustments as well. It should be said that there would be nothing preventing a Government not engaging in the indexation in a particular year, just as every year it does not freeze prices for welfare rates. It would be no different.