Dr. Aed?n Doris:

I thank the Chair for the invitation. I was invited to comment on chapters 9 to 12 of the Commission on Taxation and Welfare report. I am grateful to the committee for the opportunity to do so. My comments are based partly on my experience as a member of the Pensions Commission, which reported in 2021. I was on the technical expert group of that commission, along with Mr. Coffey. Some of the papers we produced are relevant to the Commission on Taxation and Welfare report. I also co-authored a report on the introduction of a living wage for the Low Pay Commission last year. That report considered how earnings interact with the tax and benefit systems, a matter which is also discussed in the commission’s report. My academic research has often addressed how the benefit and tax systems affect incentives to work. In my full submission, I commented on the commission recommendations that were most strongly related to these areas. I will outline the main points today.

Regarding sustainability, the Pensions Commission heard convincing evidence that public finances are not sustainable, partly due to the ageing of the population and because of challenges related to climate change. For this reason, I strongly agree with the arguments the Taxation and Welfare Commission makes in favour of broadening the tax base. The Pensions Commission recommended increasing PRSI receipts by removing the age exemption for those over 66 and removing the exemption on pension income other than the State pension. We also recommended increasing the self-employed PRSI contribution rate, initially from the current 4% to 10% and then to the same rate as the class A employer rate. The Commission on Taxation and Welfare has made similar recommendations. The commission also proposed other PRSI base-broadening measures, including applying PRSI contributions to employees earning below the current threshold albeit at a lower rate. This recommendation would improve sustainability and eliminate the problem associated with the current cliff edge of PRSI eligibility.

Commission recommendation 11.1 states that secondary benefits provided by Departments other than the Department of Social Protection should be designed jointly with the Department of Social Protection to ensure appropriate integration and I strongly concur. In our research on the possible introduction of a living wage, it was striking that in some counties, the introduction of the living wage could make a working parent currently eligible for the housing assistance payment, HAP, ineligible. This shows that the structure of HAP can be a strong disincentive to seeking higher earnings for some parents.

As regards the tax system, the commission recommends that the standard rate cut-off point be fully individualised, which I agree with. Irish women have been shown to be particularly responsive to wages. Any measure that increases the net wage rate for secondary earners, who are often women, tends to increase female participation. This would be beneficial for the sustainability of public finances and could also help to reduce the gender earnings gap. I note that Dr. Doorley has done a lot of work on this topic, and she is the expert in that area.

Regarding welfare payment adequacy, the commission recommends that the Government undertake a benchmarking exercise in respect of all working-age income supports, with multi-annual targets subsequently set for social welfare rate increases based on an evidence-led process. The Pensions Commission made a slightly different recommendation. We suggested a standing body, rather than a one-off benchmarking exercise. This body would be similar to the Low Pay Commission, carrying out periodic, regular evaluations of the adequacy of the State pension. If a body along the lines suggested by the Pensions Commission were set up, it would be feasible to cover working-age income supports as well as the State pension, as similar data would be needed to evaluate the adequacy of both types of payments. As regards the possibility of a pay-related jobseeker benefit, the commission gives cautious support. There are good economic reasons for linking benefits to previous earnings, as it would allow workers to be less risk-averse in their labour market decisions and may allow unemployed individuals more time to make better labour market matches with employers, both of which enhance productivity. However, I agree with the commission that the design of an earnings-related component needs to be carefully considered because any increase in benefit entitlement will reduce the incentive to find work to some extent; there is strong evidence that incentives matter to the duration of unemployment.

The commission makes a strong suggestion in recommendation 12.5 that the existing system of child income supports be reformed to provide a second-tier support linked to household income, rather than parental labour market status. This payment would be in addition to universal child benefit. I strongly support this. A second-tier payment for low-income households would allow the elimination of child dependent allowances in jobseeker payments. This second-tier payment would, in turn, reduce the replacement rate for parents and enhance employment incentives. In addition, a second-tier payment would allow much better targeting of child poverty, which is a serious problem. I thank the committee again for the invitation today and I welcome any questions.