Oireachtas Joint and Select Committees

Wednesday, 7 November 2012

Joint Oireachtas Committee on Education and Social Protection

Pre-Budget Audits: Discussion with Social Justice Ireland and TASC

2:05 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I welcome the witnesses. The next matter for discussion is pre-budget audits. We have invited two groups. From Social Justice Ireland I welcome Fr. Seán Healy, Sr. Brigid Reynolds and Ms Michelle Murphy. From TASC we have Mr. Nat O'Connor, Ms Aoife Ní Lochlainn and Mr. Tom McDonnell. We also have written submissions from Barnardos and Inclusion Ireland to further inform the debate. We will write to them in due course.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they will be entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

The opening statements of witnesses will be published on the website of the committee after the meeting. I invite each group to make a submission of approximately five minutes, so as to give members an opportunity to ask questions. They will be able to contribute further at that stage. The meeting is due to conclude at approximately 3.30 p.m.

I invite the representatives of Social Justice Ireland to make their presentation.

Dr. Seán Healy:

Thank you, Chair. I am grateful for the opportunity to present on this issue which is close to our hearts. Social Justice Ireland has always been of the view that the budget process does not allow for much of the work that requires to be done, in particular in advance of the budget.

We wish to say four things on pre-budget audits. The first is that they are welcome. Second, we want to look at what happens currently without pre-budget audits. We want to examine what a pre-budget audit would be like. Finally, we want to look at what it would achieve for budget 2013. We have five minutes so we will just hit a few points on each issue.

First, pre-budget audits would be welcome and would bring real reform. We know the Government is committed to reform of the budgetary process. We are not convinced that it has gone nearly far enough. Some of the things that have been done are welcome but the introduction of pre-budget audits would be a most welcome initiative. It would hopefully result in the elimination of kite flying and the destabilisation that comes with such a practice because all sorts of ideas get flown as kites and have the impact of making people worried even though there might not be much substance to them, whereas, if there was a pre-budget audit such an exercise would be unnecessary. A pre-budget audit process would also ensure that parliamentarians would be fully informed before they vote on the budget. Much of the problem currently is that the budget is presented and most Members in either Chamber have had very little time to see it or discuss it in advance and they are voting on particular parts of it within a matter of hours.

In terms of what happens currently without pre-budget audits, one consequence of budget 2012 is that the income of the poorest 40% of households fell by a factor of 2% to 2.5% while the richest households fell by only 0.7%. The budget was skewed towards benefitting the better off rather than those who are poorest. The bottom 40% took the major hit. A pre-budget audit would have shown that was the situation that would emerge and if it were sufficiently clear in advance I hope it would have produced a different outcome in that the Government would have made adjustments.

In the absence of pre-budget audits over the past 25 years - let us look at the period between 1986 and 2011 - social welfare rates dramatically fell behind pay and other increases across all sectors, yet because there was a substantial increase in welfare in budgets in the years from 2005 to 2007 and people tend to look only at the most recent years there is a misunderstanding that welfare recipients have benefited enormously compared to others. However, when one looks at the process over a quarter of a century one sees that is not true. A pre-budget audit would show that to be the case.

A third issue arises in that context which we feel is important, namely, without a pre-budget audit the selective use of data leads to inaccurate analysis which in turn leads to inappropriate policy proposals and decisions. That is not confined to the Oireachtas. A recent troika document selectively used data in five areas we identified and discussed with them. They did not challenge anything we presented to them in recent meetings. We have shown, for example, that they selectively used the data on poverty, how unemployment rates have fallen over time and data on the increase in welfare rates in the past decade, which is the one to which I just referred. They have selectively chosen data on replacement ratios and they have also selectively used data on the distribution of hits in the budgets during the recession. Those are just five examples.

In selectively using data, and we can show members those data in response to questions if they are interested in it, inaccurate analysis was presented by the troika in its documentation and, as a result, it is proposing inappropriate policy initiatives. We believe that is a critical issue that would be exposed if there were a pre-budget audit process.

Another example of issues that get missed without a pre-budget audit is the cumulative impact. For example, poor children had multiple hits, which we can document, but that is not exposed in advance without a pre-budget audit and, as a result, many issues get put out of place and the same group of people take many of the hits.

Two other points arise in terms of not having pre-budget audits. At Government level there tends to be serious engagement only with those who represent the rich and the powerful, and there is no real engagement with the rest of us. We are seen as residual. There may be a small amount of engagement but it is not of any consequence. We argue that would change if there were a pre-budget audit process.

In terms of what a pre-budget audit would look like, first, it would be a year-round process and not something that happens in the last few weeks before the budget. Second, it would be a system approach in which the entire Government system - Government, Oireachtas, civil and public servants, advisers and so on - would be open to proposals being presented. That is essential in any pre-budget audit process. In such a situation all stakeholders should be free to make proposals that should include costings which could be considered. Groups with the capacity to generate full sets of budget proposals showing revenue and expenditure impacts should have access to assistance, for example, in ensuring the costings they are presenting are accurate.

Another part of a pre-budget audit is that it would have the capacity to have comprehensive analysis of a range of different options which it would examine in terms of short, medium and long-term outcomes. In terms of some of the long-term outcomes, if we examine the 30 years from 1980 to 2010, it is the top three deciles of the income distribution who have benefited most in that period. That kind of analysis must be brought to bear in the context of budget decisions that will have long-term as well as short and medium-term impacts.

What would a pre-budget audit achieve for budget 2013 if it were in place? In our opinion it would achieve a number of things. First, it might bring a certain amount of truth to bear in the process. For example, there is an argument about the ratio of expenditure cuts to tax increases. Social Justice Ireland has recently met both the troika and, as part of the community and voluntary pillar, the Minister for Finance and the Minister for Public Expenditure and Reform, but they are telling us directly opposed points about the same issue. For example, the troika is telling us it does not mind whether the ratio between cuts and tax increases is changed as long as the total amount of borrowing reduction is achieved. The Minister for Finance is telling us explicitly that this is not true. He says that when they want to remove a cut, they must find another cut to replace it, and when they make a proposal that they will not increase a tax item, they have to put a replacement tax in place. Both of them are dealing with the same reality but they are both giving us the opposite view. One of them is being economical with the truth. It would be very useful if we knew the actual story. A pre-budget audit process would make that clear.

Another example is that such a process would clarify real options and get beyond the knee-jerk dismissal of proposals. One example of a proposal in our budget choices policy briefing is a part-time jobs opportunities programme to provide tens of thousands of positions for people who are long-term unemployed but who have skills that will be useful in the future rather than skills that will have to be replaced with new skills. There is a great deal of potential in that regard in a programme that was piloted and mainstreamed in a previous time of high unemployment. What we are getting, however, is a series of knee-jerk reactions.

In terms of what a pre-budget audit would achieve in budget 2013, it would show how the tax system could be fairer and the tax take increased in an equitable manner. It would highlight how vulnerable people would be protected in budget choices, and it would show how social infrastructure could be protected because social infrastructure is at risk given the lack of short, medium and long-term analysis before the decisions are made.

2:15 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I call the spokesperson for TASC.

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.

2:25 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I thank Mr. O'Connor. I will ask spokespersons to contribute first. Does Senator Power wish to speak on behalf of Fianna Fáil before she leaves the meeting?

Photo of Averil PowerAveril Power (Fianna Fail)
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I have to go but my colleague, Deputy O’Dea, is due to arrive presently and he is the spokesperson in this area.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I call Senator Collins.

Photo of Joan CollinsJoan Collins (Dublin South Central, People Before Profit Alliance)
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It is “Deputy”.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I am sorry, Deputy Collins.

Photo of Joan CollinsJoan Collins (Dublin South Central, People Before Profit Alliance)
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I thank the witnesses for the reports. As always, the reports we get from Social Justice Ireland and TASC are detailed on where choices can be made. Do the witnesses not feel that the debt burden we are carrying in this country is unsustainable? In order to pay back the debt, we will be in a similar situation to the current one year-on-year and it will not be resolved. That is a key question we must examine.

At this point, following five years of austerity budgets and with €24 billion being taken out of the economy, we must be more robust in speaking out in particular about areas of vulnerability. The point has been made that, to a certain degree, we in this country have been protected because of the strong social welfare system and that the true impact of austerity has not been felt. I fear the budget for this year and the next two years will have such an impact if the Government does not focus on those who have wealth. We must come out more strongly. I do not know the position of the witnesses on whether funding must be ring-fenced, in particular for those who are vulnerable. Prices are not coming down. The cost of gas has increased, which will have a knock-on effect on the cost of groceries. It has been a disastrous year for agriculture in this country, in Britain, Europe and parts of America. We must face the fact that we cannot hit certain sectors anymore. I agree with what has been said about job creation and where we get the money from. The United Left Alliance is not drawing up an alternative budget but a statement on where the money can be targeted from the wealth of assets that exist. We would also promote an increase in tax on earnings of more than €100,000. We could get anything from €1.8 billion to €3 billion from more progressive taxation on the wealthy. It will be an important call to ring-fence funding in order to protect the most vulnerable. Otherwise, they will be impacted by cuts to secondary social welfare elements.

It is proposed to take out €540 million from the social welfare budget this year. Where will that come from? It would be destructive to take anything from welfare payments to people who are at home because they lost their jobs but who want to be in work.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Does Deputy Butler wish to contribute?

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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I thank Social Justice Ireland and TASC for their presentations. Reference was made to reform in the context of pre-budget audits and kite flying. I agree with the point that was made. I have been a backbencher and all Deputies united to support the Minister for Social Protection to change the proposed cuts to people with disabilities. We had a limited window of opportunity to get the Bill changed but thankfully it was changed.

I am concerned about changing the budgetary system. The witnesses have spoken about a year-round process and budget audit. One can see the negativity coming from the media. They would have a field day. Governments would suffer if this system was introduced. It would be difficult to introduce a year-round process. It is bad enough to have a three-month pre-budget period but if that were extended to 12 months, the people would burn down Leinster House.

I accept what was said by the witnesses about the complexity of the social protection system and that due to the different classes of stamps, people do not know their entitlements. The system is poorly regulated. I come from a self-employed background. Many businesses have closed down and are seeking social protection and help but they do not know what stamp they are paying. Even working people who pay PRSI do not know what stamp they are paying. The social protection system in this country must be examined and better information must be provided to everyone. One never knows the day or hour when one will need social protection.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I call Deputy Ryan.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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I like the idea promoted by both groups of pre-budget audits and equality-proofing of budgets. The question is how we get to that point and how difficult it would be to introduce such a system. Reference was made to kite flying. One wonders whether with a year-long process one would increase the amount of kite flying. One could also ask who would carry out the process. How do the witnesses envisage that it would operate? Would it be a public process or would there be a need for economists to be involved? Would it be done by politicians or departmental officials, or is there a need for a special committee?

The other complicating factor is that there is a centre left and centre right component to this Government. In the normal budgetary process we would be arguing from different perspectives, nothing is agreed until everything is agreed and there is a good deal political negotiation to be done in terms of a final budget. If this was a one-party Government it might be easier to initiate that process. Those are the difficulties. I am looking for some direction on how this might work and how we might progress to that rather than try to scotch it in any way. Does this process work in other countries? Is there a successful model we could examine?

2:35 pm

Photo of Marie MoloneyMarie Moloney (Labour)
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Deputy Ryan asked some of the questions I had intended to ask about the pre-budget audit. I understand there is a pre-budget forum with the Minister, Deputy Burton, in the Department of Social Protection. I am sure she has met with the witnesses' organisations in that forum.

Dr. Seán Healy:

We got six minutes. We have worked for 12 months and we got six minutes with the Minister. It is interesting input.

Photo of Marie MoloneyMarie Moloney (Labour)
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We might be able to work on that in terms of asking for more time.

There is a big divide between people who are working and those on social welfare. I do not mean a financial divide but that people are being set against each other. There is animosity between workers and unemployed people and it is sad to see that develop because some of the people who are unemployed now were working last year or the year before. In bad times people turn on each other, and that is very sad to see. Some workers believe unemployed people get everything while they get nothing. We must discourage that mindset but I do not know how we can do that. A person should not be better off unemployed than working but do we cut social welfare payments or increase wages? Increasing wages will be a matter for the employers but in the current economic climate I cannot see them doing that. I would never advocate cutting social welfare payments. I would fight tooth and nail to keep the current rates and have done with the Minister but in some cases double payments were given, and that drove working people mad. If people who are working see someone on a social welfare benefit or on a community employment scheme getting a double payment, which amounted to half a week's work, they were aggravated about that. People are turning on each other and we should not allow that to happen. How can the witnesses close that divide between workers and the unemployed?

Reference was made to the Social Insurance Fund. This committee had a long session on that issue and we have given suggestions on it, for example, if we bring the self-employed into the system they should be allowed to pay the same rate as a PAYE worker. That would generate more funds into the system and give them their benefits when times are hard for them or when they are ill.

Another idea I suggested on which I would like the witnesses' feedback is that in many instances people are signing for credited contributions with no income from it; they are doing it to protect their pension. A small charge of, say, €1 per week, is a cheap pension policy for somebody signing for credits for pension purposes. We could speak about carers and so on and spend the day talking about each sector individually but I would like the witnesses' feedback on some of those issues.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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I want to add one brief point to my contribution. Regarding the two-party Government approach, having to agree a programme for Government at the outset of the term of the Government may put the entire budgetary process in a straitjacket for the remaining four or five years.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I will make some brief points. On Senator Moloney's point, we must get out the message that everybody in our society is making their contribution. I understand that in other countries, including the Nordic countries, people on the equivalent of our social welfare make some contribution along the lines of what Senator Moloney stated. People must give something to get something back, but that should be done across our society in a redistributive way. In recent years an entire section of people who may have been long-term unemployed would have got social welfare, and there would be resentment about that. I accept that may be unjustified but the idea of everybody contributing to our recovery should be examined.

Regarding the pre-budget audit, the Oireachtas has implemented an all-year process. We are in the first part of that. We had a substantial number of pre-budget meetings with the Minister for Education and Skills and the Minister for Social Protection in which we went through a great deal of information. On the point about kite flying, there was a great deal of kite flying last year but much of what is in the public domain now is not kite flying. It is information that has come out from Oireachtas meetings and reports that have been put into the public domain, as well as information gleaned from parliamentary questions asked by TDs. We must be careful not to label everything as kite flying because the only people who can kite fly are Ministers. The idea is that they put out the information to gauge public reaction but that is not what a backbench or an Opposition TD does when he or she makes a suggestion.

I have another concern about what Dr. Healy proposed. There is a group of people which meets with people who are poor and those who are struggling on a daily basis. They are TDs. People come to our clinics. That is the reason I resent the idea that there is something wrong with what is called clientelism because it is voters contacting their TDs about their concerns and the way decisions affect them in their lives. There is an issue about representative democracy. We could not have a process such as the partnership process which tried to replace directly elected representatives. I flag that concern but that is not to say that I am not favourably disposed to the idea Dr. Healy proposed.

Dr. Seán Healy:

I thank all the members who made interesting points in that context. There are many points I could respond to but we must pick and choose what we can respond to. I would make the point that we were asked to speak about pre-budget audits, their pluses and minuses and so on. We focused on that rather than on our pre-budget submission which members have already but there are connections between the two of them. For example, on Deputy Collins's point about ring-fencing, we do not believe there should be any reductions in welfare or in child benefit. We have argued that that should not be the case but we have shown the reason we make that case. Not only have we shown how the Government can reach its borrowing requirement reduction of €3.5 billion as required by the troika while protecting the vulnerable and those who are poor but we presented fully costed proposals across the system. Central to that is the change in the ratio between expenditure cuts and increases in taxation. We very much agree with TASC in the analysis of what is going on in tax, and that Ireland is a very low tax country.

It is not so much about targeting the income tax sector as about having a broader tax base with a fairer tax system and higher tax take.

When we talk about tax in this context, we are talking about all charges, social insurance payments and all payments that are made locally and nationally. A pre-budget audit would eliminate the nonsensical arguments. Many of the issues to which kites are attached are not very well grounded. We know the numbers but the people talking about the numbers flying around in the media have no idea about them, the costs or implications. A pre-budget audit system would result in the kind of analysis required.

A problem that is undermining many of the efforts to make progress, even within what the Government has done up to now, which we welcome, is atomisation. This results in only one issue being dealt with. The Government is just finishing putting into place legislation on the fiscal council. Why do we not have a social council to examine social impacts? Why have we five people with backgrounds in economics, and who are being afforded priority, considering the impacts and making recommendations to the Government and nobody examining the impacts in the special-needs area or any of the other areas that organisations such as TASC and ours are highlighting? There is nobody else outlining the consequences of the route the Government is taking. The Government and entire political process would benefit from having a pre-budget audit process.

2:45 pm

Photo of Marie MoloneyMarie Moloney (Labour)
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On social welfare.

Dr. Seán Healy:

Yes, on social welfare generally. It is important that we not get carried away with the misinterpretation of many of the data. Misinterpretation is not confined to Members of either House, for example, but has been evident in troika publications. The fact is that the income of three out of four individuals receiving an income through the social welfare process would be 40% greater if they were employed. This is taken from the ESRI's budget prospectus publication for 2013, which was released a matter of weeks ago. This is the most up-to-date datum. I referred to replacement ratios. The troika has written rubbish - uninformed claptrap - about replacement ratios and has circulated it as factual analysis. It has been very selective with the data it has used and consequently produced inaccurate analysis and an inappropriate policy position. When we met representatives of the troika, we presented it with a document – it is publicly available and on our website – in which we outlined its mistakes. It did not dispute our contention at the time and has not done so since. We have offered to meet the troika's technical teams if they believe our analysis of what the troika has done is in any way questionable.

Let me deal with two points raised by the Chairman, one of which has to do with long-term unemployment and resentment. In this regard, we are again in serious danger of communicating nonsense. There has been much commentary at the highest level of public broadcasting indicating that 100,000 people would not take up a job when there were jobs available before the crash. This is rubbish and not in accordance with the facts. In 2007, the last year before the recession and crash, the unemployment rate was approximately 4%. One must examine long-term unemployment, however, because there are many people unemployed who have just come out of school or college, who have just been let go or who are in transition from one job to another. In 2007, the long-term unemployment rate was 1.3%. Some 28,000 people were unemployed for more than one year. Today, this number has risen to 182,000. Nobody will convince me that the 164,000 who make up the balance are layabouts or useless people who have basically decided they will opt for a lifestyle choice of living on the dole. It is simply not the case.

Photo of Marie MoloneyMarie Moloney (Labour)
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Nobody is suggesting that.

Dr. Seán Healy:

I am not saying any Member is advocating it, and am not even talking about the Senator. I am saying that, in the public arena, that is where the resentment is coming from.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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One does not tend to hear Members of the Oireachtas making claims like that.

Dr. Seán Healy:

I did not say they are. I said the view is expressed in the media.

Photo of Marie MoloneyMarie Moloney (Labour)
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Dr. Healy referred to the highest political level.

Dr. Seán Healy:

I referred to the highest broadcasting level, not the highest political level. I am not allowed to name names, and will not do so; suffice it to say I am talking about public broadcasting at the highest level. Time and again, I have heard the same broadcaster say that over 100,000 people would not take up a job when jobs were available. I am simply saying that is untrue. Under no circumstances am I suggesting a member of the committee is making the claim. In fairness to politicians, they are far closer to the reality and would not make such a claim.

2:55 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Okay.

Dr. Seán Healy:

I wish to make one final point about the process. I am strongly of the view that nothing should replace the role of Parliament, that is, the role of elected Deputies and Senators, Oireachtas committees and so on, which is the reason, for example, I would like to see that in this context. This also was the reason that for all the years during which we were in social partnership, I made a proposal, which was written about and published endlessly by our organisation, that we would welcome an opportunity in which an Oireachtas committee, either pre-existing or set up for the purpose, would engage on a quarterly basis with all those involved in social partnership to go through any updates and so on. We strongly expressed the view all the time that there was not a single item in a national agreement that did not have Government support. Any proposal that did not have Government support, no matter who was making it, did not wind up in an agreement. As part of the community and voluntary pillar, we never had the major role in social partnership but we did play an active and strong role there in trying to represent vulnerable and poor people, as well as many other groups who needed support in the process. However, I always have accepted completely the primacy of the elected Parliament and parliamentarians. Throughout the 15 or so years in which we were there, we argued repeatedly for a greater engagement by the Oireachtas. In that context, we constantly suggested an Oireachtas committee in order that both Opposition and Government people would be involved.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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That is good to know because this issue was raised in here as well.

Dr. Seán Healy:

The Chair's point is taken.

Mr. Nat O'Connor:

If it is all right with members, I will speak briefly before inviting my colleagues to talk about a couple of technical points. As for protecting people with low incomes who are vulnerable, perhaps I did not make it clear enough in my presentation but we provide numbers and cost estimates for all our proposals, which indicate one can meet the target the Government has set this year without being obliged to cut social protection for those with low incomes or who are vulnerable. We absolutely would state one could ring-fence and protect secondary benefits, as well as primary benefits. On where we would get money for jobs, our proposal of €4.5 billion involves looking at the National Pensions Reserve Fund, which essentially is a national wealth fund. Again, the economic evidence suggests that now is the time when one will get much more value for money in investing that money in the economy, not simply for a short-term stimulus and job creation but by targeting it in areas of strategic infrastructure, such as broadband, in which one will get a return in long-term economic development for both the private sector and the State, as well as longer-term jobs. That is where we would look for this money. Moreover, many other proposals about money, such as the private pension funds and so on, have been articulated.

In respect of the two-party Government and the programme for Government, we are considering our own strategic plan in conjunction with my board of directors, many of whom have worked in the private sector for all their lives and in some cases were chief executive officers of major corporations. Their view is that in the private sector, a strategic plan of three years probably is long enough. The programme for Government is for five years and there is no doubt that if the Government wished to conduct a review halfway through to ascertain how it was getting on, it could review, rewrite and change the programme for Government. As it is a living document, I would not think it is very much tied to that. Indeed, the fact of having a two-party Government is a strength in a way, as it can try to build a broader consensus. If pre-budget audits and analysis are to be carried out, it will require cross-party support for the kind of data that must be presented and for that kind of analysis to be opened up to scrutiny and not politicised.

On the question of the divide between workers and the unemployed, I echo many of the points made by Dr. Seán Healy. In my previous work in the Homeless Agency, we once carried out a survey of everyone who was homeless at a particular time in which we asked people about their desire to go into work. Nearly half of those in emergency accommodation were keen to get work and more than half of those who were sleeping rough at the time stated they would like to get work. While their preparedness for work and how realistic that was are open to question, there is a desire in people to have and to be in work. This pertains to all the social benefits and personal dignity that go with having a job and having a role in society. This desire is very strong and I would dispute any claim that there are tens of thousands of people who are unwilling to work. I believe there is a lot of stereotyping and a lot of very nasty commentary which is not based on evidence or on working with people.

My colleague, Mr. Tom McDonnell, will talk about the debt and the three years of budgets to come, after which my colleague, Ms Aoife Ní Lochlainn, will talk about the issue of how equality auditing would be done in practice.

Mr. Tom McDonnell:

Deputy Joan Collins asked about debt and debt sustainability. As members are aware, Ireland's debt-to-GDP ratio was previously forecast to peak at approximately 120% in 2013. That was contingent upon growth levels that perhaps were slightly unrealistic and optimistic, as indeed they have been for the past four years, because of modelling problems and optimism bias. However, the point is that if growth is lower than anticipated, as is likely, and as IMF multipliers that measure the impact of austerity and stimulus on growth and employment come to pass in the future, as is likely, then growth and employment will be lower and the debt-to-GDP ratio will not stabilise at 120%. In itself, however, even a ratio of 120% is a problematic number because if one considers Ireland's debt-to-GNP ratio, it will peak at approximately 150%, and the weight of evidence from economic history suggests that beyond 90%, such debt begins to weigh permanently on growth and employment. Consequently, in an economy with a higher ratio of debt than that, certainly at ratios of 120% or 150%, the burden becomes increasingly heavy and one wastes more and more of one's income each year on debt interest repayments. In a couple of years' time, for example, the interest repayments would exceed the entire education budget and both short-term and long-term growth become lower. The productivity potential of one's economy becomes lower and one moves towards a negative cycle, which becomes increasingly worse and one moves towards a situation akin to that which obtains in Japan. While one might argue that Japan has maintained its high levels of debt for a long time, the Japanese economy essentially has stagnated for two decades. Is that what we want for Ireland and is that the way we are going?

In addition, a country such as Ireland is more susceptible than are countries such as Japan or the United States. One reason is that we are dollarised, albeit with euro, in that we do not control our currency. This means we can run out of money and debt sustainability actually kicks in at a much lower point than it would for countries such as Japan, which have maintained a higher level of debt than 150%. One can see that the other countries in Europe which are engaging in the same process as Ireland, that is, Greece, Portugal and Spain, are in freefall at present. Moreover, weighing us down even further are the household and corporate debt, as well as the damage in the banking sector. All these things will weigh on consumption and an investment for the foreseeable future, as we wind out of this balance sheet recession. One could be talking about years of stagnant employment and growth unless there are major changes of policy, ultimately at a European level.

Nevertheless, however, as Ireland itself has a deficit requiring €8.6 billion in adjustments over the next three years - the deficit itself of course is closer to €13 billion or €14 billion - the question is what Ireland can do. Ireland can choose particular austerity measures, for example, that minimise the damage to growth, to vulnerable people at the very bottom and to employment. Moreover, there are areas for which one can aim. For example, when one is considering taxation measures, the worst thing one can do is to tax low income workers. They spend all their money in the economy, it has negative implications for the labour market and so on. On the other hand, the least damaging areas are those such as intergenerational wealth transfers, such as capital acquisitions tax in Ireland, or passive income, such as rental income. That is the kind of smart fiscal consolidation in which one can engage. Even though we are constrained, we still have choices.

One of the worst things one can do is to cut the capital budget disproportionately. The troika and, I imagine, virtually every economist in the world would heavily criticise any government that would cut its capital budget disproportionately, on which budget long-term growth and growth for people who are in long-term unemployment at present is contingent. This is particularly the case in the construction sector, because the jobs from the boom time period are never coming back at the same level they reached previously. Consequently, the worst thing one can do at this moment is to cut the capital budget. The Government has been criticised in this regard by the troika. We would also criticise this, as exacerbating the crisis and making it worse than it otherwise needs to be.

3:05 pm

Ms Aoife Ní Lochlainn:

I will be very quick. In answer to the question about equality auditing and whether it happens elsewhere, yes it does. It happens in Scotland and is done through the Government and Parliament. They utilise the expertise of statutory groups and people who are expert in specific areas of inequality to put together a statement which is then responded to by the Government. This is all done in the open. The whole idea behind it is to increase transparency and debate. If one is looking to take the heat out of budget discussions and is seeking a more calm and rational debate, this is one of the better ways of doing it. That is because all the options and data are out in the open, so we can have a more rational debate than we currently have where everything is squashed into one part of the year.

A group of civil society organisations is currently examining the issue of equality auditing. I think it is called the equality budgeting campaign, but I apologise if I have the name wrong. It will be seeking to put together proposals that can be used in an Irish context. It would be useful if we could have something in place in the next year or two, as it looks like we will have further austerity budgets.

Replacement rates were mentioned, as were the long-term unemployed and people resenting the fact that payments are made to unemployed people or those on CE schemes. In a study by TASC on budget 2011, we conducted a distributional analysis and found that single people with children suffered the greatest loss in income. Some of that loss was brought about by changes in secondary benefits. I would highlight, in particular, payments to lone parents and also child benefit. These income payments have a huge effect on incomes to specific groups which often depend on them.

The CE scheme itself is designed to provide people with experience and work. It also provides much-needed local services.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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We recently examined CE schemes fairly comprehensively. The point being made by Senator Moloney and myself did not concern resentment of people in long-term unemployment; it was more the idea they have in other countries where those on social welfare might pay a small contribution towards their credits or the social insurance fund. It was more in that context that the point was made. My understanding is that in countries which pursue social democratic policies, they do have contributions from people on social welfare or low pay, even if it is very small. The overall effect of their budgets is redistributive and obviously they have very good public services. I just wanted to make that point.

We have to conclude this meeting because another meeting is scheduled. What Ms Ní Lochlainn said about the Scottish model was very helpful and we will certainly examine that further. This meeting has been very informative for us. As Deputies and Senators we look at these submissions and read them in detail. Many of the parliamentary questions in recent weeks were based on matters that are in such submissions.

The committee has a limited brief and cannot write to the Minister for Finance, but we will write to the Minister for Social Protection and bring to her attention the presentations made here, together with a transcript of the meeting. We will ask her for feedback on the points that have been raised. We will be following this up because it is an issue that the committee is keen to pursue.

I acknowledge that there are members of the equality budget group in the Gallery, as Ms Ní Lochlainn mentioned. We take a great interest in this issue. I wish to thank those in the Gallery for attending this meeting. I also wish to thank Ms Aoife Ní Lochlainn and the other witnesses for attending this meeting and for their contributions.

The joint committee adjourned at 3.35 p.m. until 11.30 a.m. on Tuesday, 13 November 2012.