Mr. Matt McGann:

If I could come in on the broader points, we know that ultimately it is a policy decision, so I can give the Deputy some considerations for thinking about it. This was discussed at the committee in February. As Ms Connors said, it is not simple. It can quite complex. The first question concerns whether you are indexing to wages or to inflation. Indexing to wages looks more natural when you are thinking about the tax system because if wages are moving up, people are moving up into higher brackets. Indexing to wages allows people on social welfare to maintain parity with people with paid income whereas indexing to prices allows them to maintain their purchasing power. Even if you index to wages, it is a question of what is the appropriate metric to use. The ESRI uses compensation of employees but this is like a wage bill for the entire economy. That has numbers in it. It is impacted by the number of people at work, which is not necessarily the same thing as people's rate of pay - weekly earnings that have hours or hourly earnings. There is still the question of whether you are using projections or a figure from the previous year. If you are using projections, obviously they can be higher or lower if you over-compensate and the figures come in lower.

I believe a suggestion was made at the committee that it could be retracted the following year by giving a lower amount to balance it out, which, from a political economy perspective, might not be as easy as in theory. There are also data revisions. Considerable Irish data are linked to a metric but there can be revisions to the data.

The wider consideration is about flexibility. The great trade-off is that you lose flexibility in your budgetary policy setting every year. It might mean the Government of the day has less room to target resources to a particular area to which it wishes to target resources, because this automatic indexation has been locked in. A relevant example is in the UK where it has had the triple lock on pensions. A commitment was made that pensions were to rise by whichever was the highest of wages, inflation or - I cannot remember - a hard-wired 2.5% or 3%. However, the UK has had to walk back from that, and not just because of the considerable volatility of inflation. Even before the invasion of Ukraine, it had problems with the triple lock because the nature of how employment fell during Covid meant people at the bottom of the income distribution or lower earners more prominently fell out of work. Arithmetically, that pushed up average wages. More people who lost work were average earners and the average wage growth became quite large because of a compositional arithmetic issue. That can be the problem with tying yourself to a specific metric.

It has implications for people's legitimate expectations as well because one of the benefits of automatic indexation is that people have some certainty about what will happen next year. People were told they have a triple lock which, by its nature, sounds guaranteed but it has not been deliverable due to unexpected circumstances or volatility and inflation and the UK has had to walk back from that. There are benefits such as certainty but it can be complex. That should be part of the consideration.