Dr. Karina Doorley:

There will always be trade-off between a measure being administratively simple and well-targeted and even being perceived as fair. Child benefit is a good example. It does not seem fair to exclude some children from this benefit even if their parents have very high means but the universality of child benefit means many people get it who simply do not need it. The same is true for this electricity bill credit. Interestingly, this was one of the recommendations of the European Commission for policymakers who wanted to give some temporary help to households for what they considered a transitionary increase in fuel prices. One of the suggested measures was an energy credit. Others included temporary increases to targeted payments such as the fuel allowance. That is something that was done here during the pandemic, namely, the fuel allowance season was extended by four weeks because elderly people were being asked to cocoon. This time around the policymakers have gone with this energy credit. It is administratively simple. It would probably have been very difficult to identify who needed it. It is hard to come up with rules like that without linking it to existing benefits or systems. That is the reason that was the option chosen.

To return to the universality of indexation, it depends on what the Government objective is. For example, do we want to target any changes in the current income distribution using policy? If the answer to that question is "No", then indexing the system in line with wage growth every year will simply keep it the same. If that is the policy target, then that is the correct policy to follow. If the answer to that question is "Yes", that we want to influence the income distribution and we think people on very high incomes should pay more tax or as their earnings increase an extra portion of those should go to the Exchequer, there is a case for a discretionary policy of excluding certain payments from indexation. Ultimately, that must be a decision based on trade-offs between what policymakers think the income distribution should look like and what the fiscal cost of those policies is. When we talk about indexation if we want to keep the status quo, indexing everything by wage growth annually is the way to do it. Then if we decide we do not want to keep the status quo, we do not index and we have ad hocbudgetary changes every year, which during the past 30 years in Ireland have kept pace with earnings growth. Even though we have not had a formal indexation system, on average, our tax benefit system has kept pace with earnings growth, albeit that policy was not in place. Even though we were not doing it automatically, that was the underlying intention or implicit rule behind changes to the tax benefit system over the years.