Neasa Hourigan (Dublin Central, Green Party)
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I trust members will have received an email from the Ceann Comhairle yesterday on the lifting of Covid restrictions. Insofar as this committee is concerned, the key point to note is that with effect from this week, members and witnesses will have the option of attending meetings within the relevant committee room rather than participating via MS Teams. Room capacity will continue to be reduced in the short term until all microphones and seating can be returned. This will be done as quickly as possible. It is important also to note that masks should continue to be worn by those present when not addressing the committee. I will remind members of this as necessary.

Before we begin, I wish to explain some limitations to parliamentary privilege in the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, today's witnesses are giving their evidence remotely from a place outside the parliamentary precincts and, as such, may not benefit from the same level of immunity from legal proceedings as witnesses who are physically present. Witnesses are again reminded of the long-standing parliamentary practice that they should not criticise nor make charges against any person or entity, by name or in any way as to make him, her or it identifiable, or otherwise engage in speech that may be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise nor make charges against any person outside the Houses or any official either by name or in such a way as to make him, her or it identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of Leinster House, in order to participate in public meetings. I will not permit members to participate where they are not adhering to the constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.

Today's engagement is with representatives from the Nevin Economic Research Institute, NERI, and Social Justice Ireland. The committee has agreed to examine the indexation of the welfare and taxation system and we have scheduled a series of four public meetings on this topic. I hope we are going to do some very in-depth work on it. The committee intends to discuss several areas of interest, including the rationale for indexation, the creation of an indexation system, the operation of that system and the impact of indexation on budgetary sustainability. We are also hoping to publish a report on that topic. Today is the first of these meetings. On behalf of the committee, I would very much like to welcome: Dr. Tom McDonnell, co-director of NERI, and, representing Social Justice Ireland, I welcome, Dr. Seán Healy, CEO, Ms Michelle Murphy, research and policy analyst, and Ms Susanne Rogers, research and policy analyst. I thank the witnesses very much for being with us today. I hope it will be an interesting session. I invite Dr. Healy to make his opening statement on behalf of Social Justice Ireland.

Dr. Seán Healy:

I thank the committee for inviting us. We are very happy to provide an input on this issue, which we have been addressing ourselves in a variety of ways for quite a number of years.

Social Justice Ireland supports the indexation of the minimum core social welfare payments to ensure that recipients do not fall behind the rest of society. We propose that the benchmark should start at 27.5% of average earnings, as a minimum. The reason we picked that for a starting point or as a first stage in the benchmarking process is that it is equivalent to 30% of gross average industrial earnings, which was the standard that had been set and was achieved in the budget of 2007. We also believe that the Government should commit to reaching the benchmark of getting up to 27.5% over a two-year period. We further propose that a pathway and process would then be outlined for the indexation of social welfare payments to 30% of average weekly earnings. The indexation of social welfare rates would provide certainty to households and people on fixed incomes. It would also provide certainty to the Government in its planning. It would further begin to address the many challenges of making ends meet that people with limited resources experience on an ongoing basis.

Our submission, which we have sent to the committee, is quite detailed. It outlines in depth the process whereby benchmarking was established a few decades ago and how the index and targets were set. We show how they were set and how the benchmark was reached in 2007. The progress made on social welfare payments and benchmarking between 2001 and 2007 marked a fundamental turning point in Irish public policy, because the achievement of the benchmark to average earnings of core social welfare rates indicated significant progress. It also marked the delivery of a long overdue commitment to sharing the fruits of the country's economic growth that went back to the mid-1990s.

We propose that the benchmark should start at 27.5% of average earnings as a minimum. The Government should commit to reaching that over two years. At the moment, that benchmark is the equivalent of €222.08. This means that there is a shortfall of €14 between it and the core social welfare rate for a single person today. We also propose that a pathway and process would then be outlined for the indexation of social welfare payments to rise to 30% of average weekly earnings. This should be overseen by an independent body, which would outline the indexation pathway and base any recommendations on independently verified data and calculations. We must point as a model here to the living wage technical group, which has a very clear pathway and process in place for how it calculates the living wage level per hour, year after year.

In terms of the impact of indexation, there is comprehensive research to show that the social welfare system is the key to reducing poverty among the poorest in society. I accept there are others. If people have a job, they need things like refundable price credits and things of that nature to be done. At the core, however, the poorest and most vulnerable are those who are depending on the core rates of social welfare. Welfare payments target those most in need in society and are very successful at reducing poverty. Social welfare payments also play a central role in alleviating poverty generally. When resources are focused on the welfare system, they assist those who need most help. Conversely, when the Government provides limited resources to the welfare system, it undermines the living standards and the needs of the weakest in society. That is a critical issue that needs to be taken on board.

It is also important to note that the value of core social welfare payments has been falling over the past decade. That might not be tremendously obvious to members, but I draw their attention to a report supplied to the committee by the Parliamentary Budget Office. That report is in the public arena and is only a month or two old. It analysed changes in the social welfare rates from 2011 to 2022.

It also looked at core social welfare rates and rate changes over time compared with inflation and wage changes. The analysis shows that flat increases in social welfare payments, such as the €5 increase to be applied to core benefits in 2022, result in disproportionate failures in keeping pace. Benchmarked against inflation or wage changes, the value of the payment is not €208 now, but €193 compared with 2011. This is an important point and is one of the reasons we are arguing strongly that the benchmark should be linked to the income that people are getting in society. Otherwise, there will be a falling back, which is why we would not be happy with just indexing the payment to inflation. If it does not keep pace with wages, people will fall behind the standard of living that is generally accepted in society. Indexation would provide certainty for the Government in terms of resources and revenue generation. It would also provide certainty for those on fixed incomes who have to make ends meet on limited resources on an ongoing basis. All social welfare payments should be included in the indexation process, not just a few select ones. This is one of the objections that we have to the idea of picking and choosing particular social welfare payments to increase at budget time while not increasing others, the core rates in particular.

In terms of resourcing, all direct taxation should be included. It should not just be increasing PAYE taxation or something of that nature.

In general, fluctuations in the poverty rates among those largely dependent on the welfare system have in the past correlated with policy moves that allowed the value of welfare payments to fall behind wage growth. Consequently, a great effort is required to increase these payments to catch up. If those dependent on social welfare are not to fall behind the rest of society at times of economic growth, the benchmarking of welfare rates to wage rates is essential. If we do not do this and instead continue as we have been, the division in society will get deeper. Something I am prepared to discuss with anyone is that deeply divided two-tier societies are not just bad for the people who are suffering in them because they do not have incomes, but also for business. Everyone would benefit from a benchmarked welfare rate at the core, which would keep the value of the rate rising with the rest of society. Benchmarking seems to be the key. We have suggested rates in our submission as the first two steps. There is a question over whether even this would be sufficient to allow people to live life with dignity, but the bottom line in this discussion as I understand it is whether indexation should be promoted.

I will conclude with that. We will take whatever questions the committee has in due course.

Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. Healy for his opening statement. I invite Dr. McDonnell to make his opening statement on behalf of NERI.

Dr. Tom McDonnell:

The principal rationale for price indexation is to offset the effect of cost of living increases on quality of life, poverty and deprivation. However, benchmarking the various welfare rates to some defined measure of sufficiency is an important complement to indexation. We need to know whether we are achieving our poverty reduction targets, so some measure is required. As such, we can say that price indexation is merely a proxy for stand-still policy. It might keep living standards at their current levels but it will not improve them. Inflation rates such as the consumer price index, CPI, may actually underestimate increases in the cost of living for lower income households. For example, the current high level of inflation is concentrated in areas like energy, housing and food and disproportionately affects lower income households.

The principal rationale for wage indexation is that it broadly prevents a worsening of income inequality. Crucially, wages generally rise faster than prices, meaning that wage indexation will tend to improve living standards for poorer households over the longer term. The main negative consequence of indexation is the fiscal cost and the opportunity cost. Indexation reduces scope for policy innovation and spending in other areas. The annual fiscal space for net growth of expenditure is linked to the economy's medium-term potential growth rate.

Of course, cost of living issues can be addressed in other ways. It should be noted that indexation of tax and welfare would need to be accompanied by proportional uplifts to legal wage minimums, such as the national minimum wage, as well as to the income thresholds for benefits. Doing so avoids the potential for labour market distortions that may arise. NERI proposes wage indexation as the most appropriate baseline. This could be supplemented with a system of modest and defined annual adjustments that gradually move the individual rates towards an empirically based and politically agreed benchmark for sufficiency that is based on the cost of living for various cohorts. The growth in average weekly or annual earnings is preferable to the growth in average hourly earnings, as it is weekly or annual earnings that determine living standards. On the other hand, if we replace our current ad hocsystem with price indexation, income inequality will rise over time as welfare benefits fail to keep pace with labour income and capital income.

We are not quite convinced, however, that a triple lock based on some arbitrary minimum is a particularly good idea. While the triple lock is an effective indexation link for maintaining and improving living standards, it is also the most costly to the Exchequer, limits policy flexibility and could cause economic distortions if it were to grow faster than wages consistently. I am happy to elaborate on this.

All social protection payments as well as thresholds for access to certain payments, including non-cash benefits, should be given equivalent treatment. Indexation should apply to all payments if it is to apply to any. Similarly, were indexation to be applied, it should be applied equally across all taxes on labour, notwithstanding the need to review the tax system on an ongoing and consistent basis against the core principles of fiscal sustainability, economic efficiency and equity. The issue of sufficiency benchmarking is relevant. Indexing should not replace the ongoing annual process of reviewing the tax and welfare system.

Excise duties, such as those on alcohol and cigarettes, would ideally be incorporated into any indexation system. However, price inflation rather than wage inflation is the appropriate baseline for indexing excise taxes because they are taxed per commodity unit rather than on a percentage basis. If they are not indexed to price, then they will gradually become cheaper relative to other goods. On the other hand, if they are indexed to wages, they will gradually become more expensive relative to other goods. Of course, that may be the policy goal.

The economy is a complex and dynamic system with many moving parts. Projecting often volatile wage and price trends is fraught with difficulty. This is particularly the case for forecasting over a six-to-18-month time horizon. As the committee knows, we are going through a period of very high price volatility on account of an extremely truncated economic cycle. Wage inflation itself can be highly volatile. Weekly earnings grew sharply in 2020 due to the compositional skew of jobs lost during the early period of the pandemic. Therefore, indexing to some assumed price or wage trajectory is problematic, although there are a number of potential workarounds. One way of designing indexation may be to make it backward looking rather than forward looking. This connects the increase in welfare rates and tax bands to actual developments in the economy. For example, weekly wage growth averaged over the four most recent quarters of annual growth could be one of many plausible options. A smoother pattern of growth over time would be generated by including more quarters of data. Alternatively, indexation could be set at a presumed long-run average for wage growth with this value re-estimated every few years. This would add certainty to household budgeting as well as to the public finances.

Sharp increases in inflation would remain a potential problem, but this is equally true of our current ad hocsystem. It is not realistic or desirable to expect an annual budget to be completely flexible and responsive to short-term price swings. Policy stability is important to the perception of the public finances and revaluations should only be triggered in extreme circumstances. In any event, the assumption is that sharp and sustained price increases would eventually be reflected in higher wage growth and, therefore, in the following year's indexation.

Inflationary pressures in particular areas such as energy costs or housing costs, as we are seeing at the moment, could in theory be addressed via changes to the relevant secondary welfare payments or benefit thresholds. However, this should only trigger in unusual cases. Recall that indexation based on wages will, on average, exceed CPI inflation in most years.

NERI anticipates long-run price inflation of close to 2% and long-run wage inflation of close to 3.5%.

Extrapolating from Economic and Social Research Institute, ESRI, estimates for budget 2020 conducted by Tim Callan, Claire Keane and Mark Regan and working on a static pre-pandemic basis for total unemployment suggests that price indexation at an average of 2% would cost close to €750 million of fiscal space per annum and that wage indexation of 3.5% would cost in the region of €1.3 billion.

The Irish Fiscal Advisory Council’s fiscal space calculator indicates that a 1% wage increase raises €181 million from not indexing the tax system. Annual price inflation has averaged 1% over the past three years, while weekly wage growth has averaged close to 4.5% per annum. Indexation in line with wage earnings is sustainable in terms of fiscal space and is fiscally neutral. It reduces policy flexibility but it adds to certainty for household budgeting. Arguably, it also adds to fairness and fiscal certainty because more politically powerful cohorts will have less opportunity to push for special treatment at pre-election budgets. I look forward to engaging with the committee.

Aindrias Moynihan (Cork North West, Fianna Fail)
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I thank our witnesses for their presentations, which contain a phenomenal amount of information. I had the opportunity to read part of them and to try to digest as much of them as possible. The question of whether we would be indexing to inflation or wages is one that stood out for me because I understood initially that we might be linking to inflation and that Dr. Healy was very much focused on linking it to wages. It sounds like a very positive and good approach. Are there potential negatives about carrying out that kind of indexation? What would it mean for the cost of living? Is it all positive or are there possible negatives?

Why should we link to wages rather than inflation? We have seen over the past while that wages in some sectors such as finance and technology increased and that there is a shortage of trades so people in those areas will be able to command higher wages. Many others have not really seen any improvement or change in their wages over the past year. The situation is lumpy regarding places where we would see wage increases. Could the witnesses outline why we should link to wages instead of inflation?

Are the witnesses talking about all social welfare benefits such as pensions, working family payment and child benefit? Would it also include the other benefits along the edge such as the free television licence, the fuel allowance, medical card thresholds and PRSI relating to the cost of glasses? Are the witnesses talking about the gamut of social welfare?

I am conscious of families that do not receive social welfare payments in circumstances where a member of the family is working. Would the witnesses favour linking taxation bands or thresholds? Where would people who are not on social welfare and who are just keeping their heads above water sit?

Neasa Hourigan (Dublin Central, Green Party)
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I do not know which of our speakers would like to comment on some of those issues.

Dr. Seán Healy:

On why we should link to wages rather than benchmark to inflation, the issue is quite clear. If we benchmark to inflation, people on social welfare will fall behind the rest of society. It is as simple as that. The reason for this is because wages outperform inflation. One of the things we are trying to do with the most vulnerable is not let them fall further behind. That is why the benchmark should be tied to wages.

We must then make the point that having chosen a benchmark, we need to then decide where the index is and what percentage of it we will use. That is why we were presenting what we think are achievable goals, like 27.5% and 30% of the wages situation, in the short to medium term. Another thing we would say in that context is that it would apply to all social welfare payments. I do not think it is a good idea to benchmark some social welfare payments while other payments in effect fall behind, which is what will always happen to them in reality. I would not benchmark the free television licence. There is a separate set of calculations that go into that. I will check with Ms Murphy about whether there are other pieces of that she would like to highlight.

Ms Michelle Murphy:

When we start benchmarking, we will find that depending on the payment some of them will already have met it. It depends on the level of the social welfare payment. I repeat the point made in our submission that in respect of the challenging situation in which we find ourselves in terms of cost of living increases and the utility credit that is being issued, if we introduce an indexation process and choose average wages, and, as Dr. McDonnell suggested, looking backwards might be more appropriate than looking forwards, we will discover that we will not find ourselves in these types of situations because wage growth is generally beyond inflation in the first place. It means that Government also has certainty. There is budgetary certainty. It means the budgetary space can be used to tackle and target different vulnerable groups, be they people on social on welfare payments or people in low-paid employment. The positives outweigh any negatives in terms of how we might design it or fiscal implications.

Dr. Seán Healy:

The interaction of low pay with welfare is important. We have been going on about this for quite a while. There are possibly more than 100,000 people who have a job but who are in households that are living in poverty. Social Justice Ireland thinks that the key is making tax credits refundable so that people will benefit from the full value of the tax. The second thing would be to move the minimum wage towards the living wage. In fairness, the Government has both of those items on its agenda. Both of them are mentioned in the programme for Government. We will see what living wage the Government comes up with, but it should certainly be such that it provides the basics completely for somebody with a job. In that context, it would be well clear of welfare. There would be quite a gap between the two and there would be no danger of going back to a time, which has not been the case for a long period, where people would be better off on welfare than they would be in work.

Neasa Hourigan (Dublin Central, Green Party)
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Does Dr. McDonnell wish to come in?

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.

Neasa Hourigan (Dublin Central, Green Party)
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I apologise for interruption, but I have to move to the next speaker. On the issue of the living wage, I want to advise Dr. Healy that the living wage Bill has appeared on the spring legislative programme for 2022. We live in hope. The next speaker is Deputy Mairéad Farrell.

Mairead Farrell (Galway West, Sinn Fein)
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NERI's opening statement and Dr. McDonnell's comments around the cost of living issue being tackled in different ways, such as through the provision of subsidised childcare, an increased supply of affordable housing and subsidies to public transport, are interesting. We know that by comparison with other European countries, Ireland tends to be a lower spender when it comes to the subvention of those areas. It is estimated that the cost of indexing a long-run price inflation of 2% and long-run wage inflation of 3.5% would be around €750 million and €1.3 billion, respectively. If we chose to tackle the cost of living through the method of subsidies for childcare, affordable housing and reduced costs for public transport, what would that €750 million and €1.3 billion mean for us in terms of increased subvention?

Dr. Tom McDonnell:

I thank the Deputy. If, alternatively, we were to spend on universal basic services such as childcare, housing and public transport, it would reduce the cost of living. The price inflation or cost of living would be lower and that would reduce the necessity to increase welfare rates because the sufficiency benchmark will have changed. That is what I mean by policy flexibilities. If we have fiscal space of approximately €4.5 billion every year, and that will increase slightly every year, the question is how do we spend that money. Indexation is a good way to spend the money, but I would also say that it would be better for the economy and society in the long run if we make those substantive investments in universal basic services in the way that other European countries and increasingly, hopefully, Ireland will do in the future. They are not necessarily competing with each other directly. It is not necessarily an either-or situation; you should do both. Those investments in universal basic services will reduce the necessity to spend on cash payments.

Mairead Farrell (Galway West, Sinn Fein)
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I thank Dr. McDonnell. He mentioned that there are benefits to both. For poorer households, what would have the larger impact?

Dr. Tom McDonnell:

The CPI probably underestimates the cost of living crisis for lower income households, particularly at the moment because it is focused on energy in housing. What will happen to price inflation over time is that there will always be compositional effects. At the moment, it is energy, but later on it could be something else. Looking to the medium to long-term, I would say that it will be better for society overall, but certainly for poorer households who tend to be more reliant on public services. Women and children in particular tend to be disproportionately reliant on public services. An emphasis over the medium term on universal basic services would benefit those groups and overall would have a very progressive effect. Effectively, it would decommodify a part of the economy which makes market incomes less relevant, and that is better for poorer households in the long run.

Mairead Farrell (Galway West, Sinn Fein)
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I thank Dr. McDonnell for that very interesting response. What springs to mind is the report published last week by Social Justice Ireland, which I have already quoted twice today. The Social Justice Ireland report states that if the cost of housing was included, it would show that 19% of people are living in poverty. That is quite interesting. I would welcome a comment from Social Justice Ireland on the housing affordability issue and the fact that if it were included, it would put a fifth of people into poverty.

Ms Michelle Murphy:

I thank the Deputy. The report shows the impact of the cost of housing being one of the key drivers in the cost of living. The Parliamentary Budget Office report referred to by Dr. Healy also notes that housing was one of the drivers. As outlined by Dr. McDonnell, CPI underestimates the impact on low-income households. When it comes to subvention, we fall behind other European countries in terms of childcare, public transport and affordable housing. It is going to take a lot more than €1.3 billion to address the gaps we have in the short-term in terms of even meeting the average in terms of our European peers. In the meantime, we still have to support those households that are on low incomes. We have consistently argued for a floor of universal basic income and universal basic services below which nobody should fall.

We do not see these two things as being in competition with each other. Looking at indexation, it is how incomes are supported. Over time, if there is investment in, for example, subsidised childcare, social and affordable housing and public transport, that will have an impact in changes to the cost of living, and you can look again at indexation.

In terms of the areas that the Deputy mentioned, substantial investment capital investment. There is a question as to how that investment will support our climate goals and also is impact in terms of reduction of living costs. However, we are talking about indexation. One of the things that any indexation process that is designed will also have to somehow accommodate the impact our climate transition on low income households, particularly households in fuel poverty, and how the indexation system can support them.

Mairead Farrell (Galway West, Sinn Fein)
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Do I have time for one more question? This is very interesting. Obviously, everything that we discuss in the budget oversight committee is extremely interesting. Earlier, Dr. McDonnell stated: "Crucially, wages generally rise faster than prices, meaning that wage indexation will tend to improve living standards for poorer households over the longer term." I would love if he could talk me through this a bit because I am not an expert on it. Price inflation is running at more than 5% at the moment and there is no doubt that wage inflation has been high in terms of the ICT and construction sectors. Just for my own understanding, could Dr. McDonnell talk me through the sectors that have been badly hit by Covid?

Dr. Tom McDonnell:

Wages, on average, will be in excess of price inflation. Absolutely, it is the case that there will be quarters and years when price inflation exceeds average wage growth. The Deputy is right as well in that there is obviously significant heterogeneity between the economic sectors at the moment. This reflects the tightness of the different sectors and the fact that some have been locked down. Overall though, wage growth in the economy is reasonably strong. I would anticipate that wage growth will be very strong next year.

Earlier today, the Central Bank projected inflation of 4.5%. I would still expect average wage growth to exceed to 4.5%. That would mean that if there were backward-looking, welfare aids, admittedly, with a lag, it would still be growing at a faster pace over the medium term than the cost of living. That means that quality of life, poverty, deprivation - all of those indicators - should gradually improve. Also, in the context of relativities, the overall picture in terms of the income inequality distribution should broadly improve. The Deputy is right that there are sectors of the economy where wages are not tracking true just yet. However, I anticipate that this will change as we move through 2022.

Neasa Hourigan (Dublin Central, Green Party)
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We appear to have lost Deputy Durkan. I call Deputy Canney.

Seán Canney (Galway East, Independent)
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I thank Dr. Healy, Dr. McDonnell, Ms Murphy and Ms Rogers for their presentations. I spoke in the Dáil earlier about the cost of the living, low incomes and the situation whereby there are huge inflationary pressures. Of course, this will impact on people who are on social welfare. I made the point in the House that we should be index-linking basic payments.

On the other side of the coin - and I see this in my constituency a great deal - there are people who feel that working does not pay. People in receipt of social welfare payments get the various the add-ons that come with that, including access to Student Universal Support Ireland grants for third level education, medical cards, etc., because their income is below a certain threshold. When we, rightly so, try to bring in a system of social welfare which will mean that people will be off the poverty list and can live decent lives, how can we protect them? I do not think we are doing so at the moment. There is an anomaly whereby individuals in low-paid jobs who do not get the benefit of grants that might be applicable find will say to themselves that they would be as well off if they were on jobseeker’s benefit rather than working full time. How do we get to a stage where it does pay to work, but those who cannot work are taken care of by society?

There is a fine line here. I heard people talking about the minimum wage. We also have to take into account whether employers' can afford to pay the minimum wage, especially smaller companies that need workers but that do not necessarily have the wherewithal to pay €20, €25 or whatever it might take per hour in order to make work pay for people. There is a balancing act to be done here. I would like to get our esteemed witnesses' take on that and on how they would deal with it.

One other thing that comes into play is when we would have a situation where we have increases, we also have to increase the thresholds for people to access medical cards, social welfare or the fuel allowance, because they are all means tested. The threshold needs to be brought up and indexed as well. There is a plethora of additional items that go with social welfare payments. As one of the witnesses stated, they should all be indexed linked. That is fine. How do we keep the working person and the working families in a situation where they will benefit from being in work?

Dr. Seán Healy:

I would like to take this. The Deputy asked a very good question. It is a very critical issue in this whole area. The most important thing is that we should have a principle that work should always pay. That should be taken as a guiding principle. We certainly have that. One of the issues is that a full week's work should provide enough for a person to have the minimum to live life with dignity as well. That is where the whole issue of the living wage comes into play. The critical issue is that there has to be a movement of the minimum wage towards the living wage.

The living wage is €12.90. It is not €20 or €25 per hour or anything of that nature; it is €12.90. That is still more than €2 above the minimum wage. There is an issue that has to be dealt with in that context regarding employers who cannot pay the living wage. If there were a decision made to move the minimum wage to the level of the living wage, the vast majority of employers would actually step up to the mark. That would, in effect, create a situation where there would be leeway between both.

The other aspect is that it would be very important to increase the thresholds for medical cards, the fuel allowance, etc. Part of the trouble over the past decade has been that the approach to welfare has been sporadic. I made the point in my introduction that it was benchmarked in 2007. That was a big breakthrough. A benchmark had been chosen, an index had been set and it was delivered. It took a long time to get there, but it got there. That was excellent. The issue then was that the wheels came off the economy a bit with the crash, the bailout and all that. As a result, we have had this kind of situation, as I was illustrating at the start, where the value of the welfare payment now is substantially lower than what it was in 2011.

That is not a good space to be in. The people who are on the lowest welfare payments - the core payments, as it were - are most vulnerable. They find that the value of the payment is less than it was more than a decade ago. I do not think anybody was claiming that they were living in luxury at that time either.

The other point I would make is that it is important to acknowledge that people want to take up employment. We only have to look at the level of unemployment to see that. All of the organisations doing forecasts at the moment, including the Central Bank, which has been mentioned already, and the ESRI, are talking about a very tight labour market going forward. They are saying that we are going to have quite a substantial increase again in jobs in the coming year. We must be careful here that we do not develop a situation where there are two economies, with one that is paying good wages and enables people to access to all sorts of services, etc., and another where people who are on a minimum wage that does not even provide them with the minimum to allow them to live life with dignity. As we discussed already, we need to do what is required in getting the living wage into place and then dealing with issues, such as refundable tax credits and things of that nature, to ensure that people who are in a job can benefit from the full value of what they are entitled to in the first place. Next, we must deal with issues that may be causing problems, such as the thresholds and people basically being afraid to give up their medical card, or whatever, because they earn too much. There is a danger that people will fear that the cost of giving it up will be so high that they will not take that risk. We need an integrated system. We have been arguing for a long time that tax and welfare need to be integrated. Benchmarking and indexing welfare would be a good step in that direction because it would help give predictability. People would know the direction that we were going in and what could be done. That would be a good situation to find ourselves in.

Seán Canney (Galway East, Independent)
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Perhaps Dr. McDonnell wants to come in.

Dr. Tom McDonnell:

To follow on from Dr. Healy's point, it is becoming increasingly easy to link up the revenue system with the welfare system. Tax administration has come on leaps and bounds in recent years. Digitisation and digitalisation are making it much easier to link the two. I can very easily envisage a situation in a few years' time where the two systems would be completely linked.

Neasa Hourigan (Dublin Central, Green Party)
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We are having problems with the sound.

Dr. Tom McDonnell:

One of the flaws at the moment is that we provide income supports and other supports across various Departments. They all have their own methodology for calculating who qualifies and who does not. There should be a single-----

Dr. Tom McDonnell:

-----that is required all for of that. There should be a combined, coherent system for an individual. What that means, in principle, is that we need to get to a system where we avoid-----

Dr. Tom McDonnell:

We do not want to have-----

Neasa Hourigan (Dublin Central, Green Party)
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Sorry, we are having problems with the sound.

Dr. Tom McDonnell:

Does it help if I move closer to the mic?

Neasa Hourigan (Dublin Central, Green Party)
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It does. We missed the lasts few sentences of your contribution.

Dr. Tom McDonnell:

I was making the point that we have to avoid cliff edges in terms of loss of potential supports, including bidding non-income supports. What you do there is you have a system of tapering. Rather than taking away benefits in their entirety upon reaching a particular income in terms of wages or whatever, you would taper the benefits so they would gradually be eroded over time. Even with benefits that do not necessarily have a nominal cash value, such as the medical card, there could be reduced subsidies as wage levels increase, for example. There are solutions to all of these problems. Ultimately, the Irish system does a very good job of having very low marginal effective tax rates for most low-pay workers. The marginal effective tax rate takes into account the loss of benefits. There is only a very small cohort of workers who have very high replacement rates. Compared with other European countries, we do quite well there. I agree that it is something we need to maintain. One has to consider the wisdom of increasing tax rates on low-pay workers, for example. Obviously, there are revenue considerations, looking to the future, but perhaps there are better ways to do it. Ultimately, as well as increasing rates and thresholds, it means wages going up as well. That means the standard rate cut-off point, the USC and income tax bands, and the whole system effectively, becomes indexed, not just the welfare system.

Seán Canney (Galway East, Independent)
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I wish to make a final comment on that. The tapering of the supports for people who will be coming off social welfare and going into the workforce is the way forward. That could be something that could be tapered over two to three years to give people a change to adjust and to get to a level of income where they are better off than if they were on social welfare. I also think there is something to be done regarding people who are on low pay who have real hidden to costs, such as travel-to-work and childminding costs, which they have to factor in when they are considering whether to take up employment or not, based on what they are getting. I accept that we say that the living wage is €12.90 per hour. If you take that €12.90, multiply it by the 40 hours worked, take off PAYE, USC and other things, you are left with the take home pay. Out of that you have to take what you have to pay get to work, buy your sandwich at work or whatever you have to do. There is a clear issue there. As Dr. Healy said, the fundamental must be that work pays and we must incentivise people to work. We need more people working now because there is demand for more work. It is a great place to be in, but we need to ensure that as many people as possible can transition to work and contribute, and can have a more sustainable living. I thank the witnesses for their input.

Neasa Hourigan (Dublin Central, Green Party)
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I call Deputy Boyd Barrett.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the representatives from NERI and Social Justice Ireland. As always, their contributions have been most informative. To cut a long story short, what I am hearing is that indexing and benchmarking welfare against wages is the way to do it because if we use inflation, the less well off will see a bigger gap growing between them and workers. In addition, if I heard the witnesses right, there is no trade-off with the need to provide universal services in order to prevent the cost of living from rising, particularly in those areas which disproportionately affect the less well off.

My question relates a little to that posed by Deputy Canney. How far would the witnesses go in that regard? I agree with them. I would like to know how far they would go in decommodifying - and I very much like that phrase; it is a good old socialist phrase - the things that people need to live on, so that they do not find themselves in a situation where the price of things they really need and have to have to live is running away from them. How far do we go?

I am in favour of going very far, as the witnesses can probably guess. I would like to hear their opinion on that. To take energy as an example, do we start to need to decommodify energy prices? Do we subsidise them to keep them at an affordable level or cap them? To my mind, they are absolutely indispensable to living. Do we have to decommodify them? Do we have to go back to when there was greater regulation of the energy sector when the ESB was operating on a not-for-profit basis? Otherwise, we are always prey to these market things. Do we get rid of bin charges? I think we should. They are a serious factor. For are a low-income family, they are a serious problem. I have always said that they would be a problem. The cost of them is going up and up. How far do we go? That is really the question. Should education and public transport be all free? I would say "Yes". How many of those areas have become vulnerable to inflation with a rising cost of living do we take out of that inflation spiral?

Then on wages, particularly the wages of the low paid, one thing obviously is that many of these areas like healthcare and the medical card were mentioned. We were talking about raising thresholds and tapering them. Do we go the whole hog and just say all costs for healthcare should be removed? I would say that is what we need to do. Social housing income thresholds are a real problem for people now. People who are actually homeless are now being denied housing support because they are working and their earnings are going over the threshold. Do we remove all thresholds for social housing so that social housing is not something just for the low paid but is universally available for anybody who wants to apply for it? I would say "Yes" but these are radical things to suggest. Would the witnesses say yes? My questions kind of relate to Deputy Canney's questions.

I will mention one little story as well, which kind of sums it up for me. Apartments are being advertised at the moment by an apartment company that has bought whole apartment blocks in Dún Laoghaire. It is charging €2,200 for two-bedroom and €2,100 for one-bedroom apartments. Somebody who was approved for the housing assistant payment, HAP, and was homeless went to the company and said she would like to rent one of these apartments and was told to choose whichever one she wanted. She was one of the first people in the door. She thought this was amazing, chose number 11 then went back to the company and told it she was a HAP tenant. The company told her that it did not do HAP and was not set up for it . That is outrageous, first of all. I googled the same company and it is advertising jobs to work in that company to presumably show people around who are looking to rent the places. Guess how much it is advertising jobs for. It is €26,000. Now, at €2,200 for an apartment, the person who is showing people around would have to pay 100% of his or her entire gross income in order to be able to rent one. In other words, that person could not afford the apartment. What do we do to make sure wages are actually sufficient to ensure that a person can afford the basic things like housing, healthcare, heat, etc.? Those are my questions.

Neasa Hourigan (Dublin Central, Green Party)
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There is a lot to unpack in those questions. I do not know who wants to take that on first. Who is brave enough? Will I nominate somebody?

Ms Michelle Murphy:

I will sidestep some of those questions and hand over to either Mr. Healy or Dr. McDonnell. I thank Deputy Boyd Barrett. Obviously, we are looking at a benchmark against wages. The Deputy's question actually goes back to a point we made when we appeared before an Oireachtas committee a number of years ago with NERI. It is about thresholds and how we decommodify things and the issue came up in terms of the social wage. These are things Dr. McDonnell mentioned earlier and to which Deputy Mairéad Farrell alluded, that is, to subsidise childcare and public transport and then provide affordable housing, be it social housing, cost-rental or housing that is affordable for somebody to buy. If we can come to terms with those three issues primarily first, that will go a huge way towards supporting those people on social welfare but also those people the Deputy is talking about, that is, those workers on low incomes or minimum wage or even above minimum wage, which probably would be considered a good income if prices were not rising at such a rate and if the cost of housing were not so high. If we can get to that point then the pressures on the cost of living would certainly be lower.

We also have to look at subsidising those things that would rise, that is, the biggest multipliers both economically and socially. Those are the issues. It is childcare and public transport. It is looking at investment in education at all levels both from early childhoodright up now to skills development, retraining and lifelong learning. It gets back to the cost of housing as well, which was one of the big drivers in terms of the cost of living but it puts pressure on wages and on employers as well.

The Deputy also mentioned healthcare in terms of universal access. We have consistently pointed out that Ireland is the only country in the EU that does not have primary care that is free at the point of access. This is something for which we have consistently advocated. The rolling out of the community health networks and what should be a commitment to roll out and fund the infrastructure for Sláintecare would be key here.

In response to the issue of housing, we need to go beyond social housing and look at cost-rental, affordable housing and how we approach housing overall. I note that the first progress report on Housing for All was published today. We in Social Justice Ireland would be concerned at some of the issues that have been pushed back. The issue of land value has been pushed back to December 2022. There are other issues, again, in terms of how we count homelessness and other things. We seem to already be pushing back the key issues we should be getting to grips with in the Housing for All plan. It is not even a year old and yet we are pushing issues back to the end of this year. I will pass over to my colleague, Dr. McDonnell.

Dr. Tom McDonnell:

Basically, to take them one by one, education, for example, is an area in which a social return drastically exceeds the personal return. It is what we call a merit good. We want people to buy into it so we should, if anything, be subsidising and paying people to go into education rather than having them pay for school books, registration fees for third level or whatever it might be. Lifelong education, of course, should be free for everyone.

Public transport is another one. We are supposedly trying our best to have a just transition. We are trying to reduce our greenhouse gas emissions. We should be encouraging people to engage with public transport. Again, a public and social good outweighs the private good. It should, ideally, be free. Also, the cost of transport is a barrier to employment, as is the cost of childcare. To that extent, we can increase employment rates, particularly for second earners and lone parents in the case of childcare if, as we said, we were to make public transport and childcare completely free and decommodify them. There is, therefore, a strong case in all those areas for very high levels of subsidisation at the very minimum.

The Deputy also mentioned housing. NERI has proposed cost-rental housing, which would be organised through a new semi-State body. State-owned housing would, therefore, be available on a cost-rental basis where the income is recycled into the building of new housing. Over time, the State becomes a much larger player in the housing sector. There are all sorts of macroeconomic advantages associated with that to deal with the supply issue. Obviously, the housing crisis has many other factors associated with it. Land prices are a part of it. Taxation is certainly part of the solution in that regard.

We also talked about wages. Clearly, we have a low-pay problem in Ireland. We have a very skewed level of market inequality. We have many high-paid and low-paid workers. We have a low-pay problem that relates to the fact that we do not have a lot of manufacturing jobs, for example, and we have many bad-paying industries, such as accommodation, food services, restaurants, retail and things like that. Ideally, we want to move our economy away from those types of jobs over the longer term towards more high-value added jobs.

Dr. Tom McDonnell:

-----and certainly that low wages are, in effect, a subsidy to low-paid work, which is bad for productivity and innovation in the long run. The living wage could be an impetus to innovation and productivity gains by businesses that currently do not necessarily have to make the changes at present.

There are also advantages to having high minimum wage rates. For example, there tends to be lower levels of turn for firms. That means there are lower retraining costs, there tends to be better morale and workers tend to be more engaged. It could be of benefit to the economy overall, including those small firms, if there is a happier and more secure workforce. I am pretty sure I missed some of the Deputy's points but, hopefully, that touches upon most of them.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Dr. McDonnell answered very comprehensively. I thank him very much. I am curious about what he has to say on the energy issue, given that it is very topical at present.

Dr. Tom McDonnell:

Energy is fundamental. Energy and food are the fundamental units of the economy. I do not see making energy free as a merit good in quite the same way as education. I should have mentioned that healthcare should also be free, universal, single tier and so forth. I see energy as something that could be dealt with through secondary benefits, perhaps on a time-limited basis. When energy costs, for example, are accelerating as they are at present, there is a major issue in the short term. Targeted measures would be the answer to that. Remember that energy prices are following the economic cycle at present, which normally takes seven to ten years. In this case, it is happening in approximately 18 months to two years. We are seeing extreme volatility of prices. It is absolutely the case that we have an energy crisis at present, but if everything is framed in terms of the cost of living overall, then indexing to wages should resolve most of those issues over the medium term, while acknowledging that there is a necessity for short-term measures to offset the current cost of energy problems we have. I am not sure if that coherently answers the question.

Neasa Hourigan (Dublin Central, Green Party)
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Do other witnesses want to address any of those issues?

Dr. Seán Healy:

There is one small thing to bear in mind. While I agree with Dr. McDonnell on the issue of not making energy free, in that sense, but rather targeting people to protect them, bear in mind that the targeting system we have at present for fuel poverty and so on is not working. It only targets a proportion of the people who have a problem in that space. As a result, we have this bizarre situation of endless Government announcements stating that it is dealing with the energy poverty issue through raising the fuel poverty allowance by a small amount, but in actual fact it is not reaching quite a large proportion of the people who are substantially worse off. I am talking about vulnerable people who are living in poverty, many of whom cannot access money to address fuel poverty. That is quite a serious issue.

One other number that might be of interest to people in the context of this discussion is the proportion of social housing. Across the EU, an average of 20% of the housing stock is social housing, but in Ireland it is 9%. It is hardly a surprise that we have a social housing crisis. Until such time as we build dramatically more social housing units, and seriously do cost rental, then we are in serious trouble. We will be left with two-bedroom apartments for €2,200 a month that in some way or other somebody will wind up calling affordable at the rate things are going. This is surreal and loses all contact with reality.

Neasa Hourigan (Dublin Central, Green Party)
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We are already at the stage where people are seeing astronomical rents and starting to call them affordable. It is appalling, certainly in my constituency. I thank the witnesses for today's session. We are at the beginning of our work on this and I wonder whether some of our questions are very open-ended in nature. I hope they will bear with us. We are trying to get to grips with this topic and we hope to do some quite detailed work on it.

With that in mind, one of the things I wanted to ask about today was how a system of indexation would deal with this. It has been referenced a little in both submissions. How would the witnesses deal with the operation of indexation where there are sharp increases or decreases in whatever it is benchmarked to? In this case, we are all talking about wages. Dr. McDonnell talked about a backward-focused set of data that might relate to four quarters. Does he believe that would be sufficient to deal with increases or decreases? What is the danger there? Does he think we will be able to create a system of indexation that is robust enough to guard against those very sharp increases or decreases and ensure that indexation is doing what we want it to do?

Dr. Tom McDonnell:

Yes. We can design a robust system that would prove able to achieve that. It does not have to be full quarters; it could be six or even 12 quarters. The more quarters that are used, the more evened out it will be and there will be less volatility. For example, we had a very unusual year in 2020 when wage movements were very volatile because of the skew of low-paid workers, primarily, who lost their jobs. Over a longer period, wages find an equilibrium that is related to inflation and productivity. Those two things are feeding into economic growth. Wages are, in a sense, anchored to long-term economic growth. Wage increases also tend to be higher than price increases. Aiming for wage indexation is robust. It will be fiscally sound, it does not imply an increase in public spending - or an increase or reduction in the level of taxes - compared to the size of the economy and it is distributionally neutral. It is absolutely affordable and does not necessarily crowd out any of the other options we have described today, depending on political preferences.

There is the issue of very high and dramatic increases in inflation at present. Looking a little further back, inflation in 2021 was only approximately 2.4%. It was negative, 0.9%, the year before that. We are not seeing sustained high levels of inflation yet. It is true that we are expecting a high number in 2022. The Central Bank reckons it might be 4.5%, but wage increases in previous years would cover that. Wage increases in 2022 are likely to be more than 4.5%, if the 4.5% increase in inflation comes to pass. While there may be a little lag in respect of months and quarters, and catching up with the cost of the energy crisis, we will catch up.

Hence my comment that an immediate response to the energy crisis could be done with some kind of temporary measure that would not be baked into the system because over the medium term the system would be robust and would be responding to all those things. Fundamentally, wages are anchored to economic growth, and inflation and wages tend to be anchored to each other with wages being slightly bigger year-on-year.

Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. O'Donnell. Did Dr. Healy want to come in?

Dr. Seán Healy:

I thank the Chair. There is a model of how to deal with this in the living wage technical group. I mentioned it earlier but did not go into it in detail. In that technical group we recognised we could not have sudden increases in the living wage either. We basically had a situation in which we set a limit and that in any particular year the increase, or decrease for that matter, could not exceed a particular number. That is set out and explained and so on. We could have a similar situation here.

I have a concern about the way the increase would be based on the last four or six quarters, or whatever. This is simply because of people on welfare, who are already on the margin and have no space whatsoever in their budget. If they hit an increase, telling them they must wait 12 months to get recompense, that leaves them in a very vulnerable position. They are going to be struggling with less than is required for a whole year. We should be able to work it that we have predictions every year on what the increases in these areas are likely to be, so when we are talking about wages we should have some kind of idea. At the end of that year, the first part of setting out what the new rate for the following year should be would be an adjustment based on what the actual outturn for wages that year was. Then we can make the adjustment and add or subtract depending on what has happened and what is predicted for the year ahead. It is possible to do it in a way that would protect people who are vulnerable and also protects businesses and the economy generally from sudden lurches.

Neasa Hourigan (Dublin Central, Green Party)
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Yes.

Dr. Seán Healy:

I very much agree with Dr. McDonnell that, given we do it this way, there is sort of no downside in the economy because we are basically tracking the economy, in reality. That means it is not going to suddenly jump to a bigger proportion of the economy being spent in this area, or whatever.

Neasa Hourigan (Dublin Central, Green Party)
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Yes.

Dr. Seán Healy:

I just wanted to give those qualifications.

Neasa Hourigan (Dublin Central, Green Party)
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I am mindful we are in an especially volatile, dynamic situation at the moment and the world seems very difficult to track. We have seen all sorts of predictions, particularly within our own system, that have not come to pass. It is hard to predict at the moment.

Dr. Seán Healy:

I take that point.

Neasa Hourigan (Dublin Central, Green Party)
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Maybe we are overly sensitive to that issue at the moment. We are really talking about two areas, that is, the welfare system and taxes. I was wondering if our contributors could explore a little whether we should always be talking about that in terms of the same measure, in that the indexation would always be linked to the exact same measure, or should we be looking at a more nuanced approach? I am mindful that to a large extent welfare is a very domestic issue to the economy. Taxes can be somewhat more complex than that. Do our contributors have any thoughts on whether it should be the same measure across both parts of the economy?

Dr. Seán Healy:

My answer to it is "No". We should not have the same measure across the economy. The reason for that is one we have spelt out in some detail. Our position is Ireland is not collecting sufficient tax to deliver the services and infrastructure required, that is, services and infrastructure at what we would say is a western European average level. It is basically what people would expect from looking at our peer countries in western Europe.

We need to move the overall tax take up. We are not talking about a huge increase but a moderate one. We have spelt it out and provided a basis for it. I am not going to go into the detail here because it is very extensive but we have published it. A few days ago we submitted an updated version of it to the Commission on Taxation and Welfare that is sitting. I think the closing date for submissions was last week or earlier this week. Anyway, we made a submission before the deadline setting out our views on this. We are talking about raising the overall total tax by a relatively small amount. This would bring it up closer to the European average but not actually reach it. That would give us quite substantial amounts of money to make up for the deficits currently there in both services and infrastructure. Most Irish people want services like health, education and so on and infrastructure like public transport, broadband and social housing to be at a western European level and that we match our peers. To do that we must get closer to their level of tax take.

We need to deal with the illusion that is sometimes created that we can have European levels of services and infrastructure for American levels of taxation. We cannot. It is not doable. This is one of the things we believe there should be a national discussion and debate about. We have been urging the Government to have these discussions and use the social partnership process or the national economic dialogue or some process to bring together the various sectors of society to have a discussion about what level of service we want delivered in Ireland and what levels of infrastructure we want and then having a serious discussion based on evidence about how we are going to pay for those. At least some of that is going to have to come out of the public purse, if you like. That means we have to see some increase in the overall tax take, the way we see it.

To achieve that, we feel there is a need now for a new social contract. Most Deputies have probably heard us going on about this already in other arenas and so on. We believe we should be working simultaneously for a thriving economy, decent services and infrastructure, just taxation, good governance and sustainability. The just taxation piece is critical in that. There are five basic things and just taxation is critical if we are to do it. Therefore, I would not have the same approach to it as I would have to benchmarking and indexation of welfare. Once we get the total tax take up to the levels that can provide the services and infrastructure we require or that we want as a nation, then we can have a discussion about how to benchmark it and how we keep a balance between our infrastructure and services, on the one side, and the tax take on the other.

The point we constantly make is if one wants a thriving economy, which I think we all do, then we must put in the services. We must have a good health system and a good education system. We also need good infrastructure. We need good broadband, public transport and housing. To do that we must have a fair, decent, just taxation system. That is the kind of frame we operate in.

Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. Healy. Does Dr. McDonnell want to come in?

Dr. Tom McDonnell:

Absolutely. There are two parts to the answer.

First, indexation as to what we think of as the baseline or starting point for the subsequent year would be not only the welfare component but also the tax component. That establishes the status quo. One indexes to wages and everything gets uplifted.

That said, the second part of my answer, which will be longer than the first, is to agree with Dr. Healy and to say there is a revenue sufficiency issue. Social Justice Ireland, the NERI and many other organisations have repeatedly pointed to it. There are low levels of per-pupil spending on education, childcare, research and development and all sorts of other areas where it is completely legitimate to have a debate about sufficiency and the kind of society we want. I do not accept the argument that there is X billion euro in fiscal space every year and that no changes should therefore be made in respect of net revenue, up or down. The point of what I have said today about the indexation is that the baseline is such that everything is uplifted but that it might then be completely relevant and okay to make the policy decision to increase taxes or whatever it might be in a particular area.

Dr. Healy made the point about the revenue sufficiency. I do not need to restate it. It is an empirical fact. The per-person spending of other western European countries, particularly EU countries, is far higher than ours. We are way out of line. That is the reason we have a childcare crisis, to a certain extent the reason we have a housing crisis and the reason we do not have a particularly strong innovation system and so on. We do not invest. If one does not invest, one will not get the results. There is therefore no confusion or surprise as to why Ireland is where it is.

Neasa Hourigan (Dublin Central, Green Party)
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I have two brief questions. I see Deputy Durkan is back with us, and I know Deputy Canney wants to come back in. I will get in my two questions because I do not want to take up too much of the committee's time.

I will cut to the chase and ask my first question. One of the things I am interested in is how many of our population who are in deprivation or below the poverty line we would expect to be lifted out of that poverty through indexation. I notice that one of the first things the NERI's submission states is that price indexation could be seen just as a proxy for a standstill policy. I take the point that this is a complementary policy to other services and other cost-of-living issues but, in bald terms, will indexation significantly impact levels of poverty across the country?

Dr. Tom McDonnell:

Is that question for me?

Neasa Hourigan (Dublin Central, Green Party)
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I do not mind who wishes to come in on it.

Ms Michelle Murphy:

I will give an initial response. We have outlined this in our submission as well. We did some initial figures on this, based on the 2016 census and looking at indexation to the 27.5% of average earnings. We estimate that about 12,000 working-age adults would have been lifted above the poverty line, using the 2016 numbers. If that had been increased by one percentage point to 28.5%, we would be looking at an increase of 28,000 working-age adults. Then one has to take on board the knock-on impact on the households in which those people are living and what the increased income means to those households. One would expect to see a substantial reduction in the poverty risk. Our analysis, looking at budgets from 2017 to 2022, has shown that in those budgets in which core social welfare payments were increased, it had an impact in the form of a reduction in the risk-of-poverty rate. The correlation in that regard can be seen when one increases the incomes of those who are on the lowest incomes and those on core social welfare rates. There is a correlation in respect of the reduction of poverty risk.

Neasa Hourigan (Dublin Central, Green Party)
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Thank you, Ms Murphy. I know it is hard to forecast those kinds of numbers, but it is helpful to at least feel our way towards some kinds of numbers.

That brings me to my final question. Throughout this session we have dealt with a lot of issues that require a huge amount of data analysis and compilation. The witnesses' organisations both do a huge amount of research, which I rely on quite often, in this area. Do they believe that Ireland produces and has access to the kinds of data, disaggregated data particularly, that would allow us to instigate a system of indexation that could be relied on? Do we have the data on household incomes? I am thinking specifically of the issue of sharp increases and decreases. Do we have access to those data? Do the relevant Departments give access to those data in a timely manner? I do not know who wants to answer that. Dr. McDonnell, maybe?

Dr. Tom McDonnell:

The answer is that we are getting better at it. The Revenue Commissioners have now started sharing wage data, for example, with the CSO, so we now have access to administrative data. That is much better than the way we used to do it. It is through the PAYE modernisation system. We therefore have good distributional data - at least, the CSO does - and my understanding is that the CSO will share those data, so the data on the distribution of household income, at least through wages, will be available.

Neasa Hourigan (Dublin Central, Green Party)
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Do we know what the time lag on those numbers is? Is it the case that the numbers are available for the previous quarter?

Dr. Tom McDonnell:

The CSO has the data monthly so should be able to reduce the time lag to six to eight weeks eventually. It should be quite timely. Those are wage data. As for the inflation data you are talking about, Chairman, the answer is that we do not collect those data as well as some other countries. For example, the United States has what has been called a personal consumption deflator. They are able to analyse what is happening to prices at a micro level based on what people are actually buying, whereas in Ireland we rely on a basket of goods and every month the CSO goes out and literally looks in shops and sees what has happened to those goods. My understanding is that there are opportunities to improve those data based on the way we now buy things, using debit cards and so forth far more than we used to. Purchasing information is getting better. That said, it is still not where it could be. The answer to your question, Chairman, is that we are getting better but certainly not on a real-time basis.

Neasa Hourigan (Dublin Central, Green Party)
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Would it be fair to say that we could do with some review or reform of the consumer price index? I notice that they are having this conversation in the UK about the reality on the ground as to what people on low incomes are buying. The UK's consumer price index does not reflect the reality of people on low incomes.

Dr. Tom McDonnell:

It is a very good point. There probably should be a different inflationary indicator that focuses on low-income households and the basket of goods they purchase. That could be done by the surveys of households as to what they have been spending. Again, there would be a lag and it would not be real-time but it would certainly be an improvement on what we have. The focus there would be on lower income households. It should be remembered that what we and Social Justice Ireland are proposing is wage indexation, so it would be relevant in dealing only with these very specific shocks such as we are seeing with energy prices at the moment. I ask the committee to remember that we have had about a decade of very stable prices.

It could be a case of creating all this new infrastructure and administration and never having to use it again for another ten or 15 years because these energy shocks are unusual and something we have not seen much of in the last 15 years.

Neasa Hourigan (Dublin Central, Green Party)
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Let us hope it is unusual.

Bernard Durkan (Kildare North, Fine Gael)
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I am sorry I had to leave to speak elsewhere. I am not sure whether I was appreciated in those places or not but we will have to push on. Indexation has merits but it is not the answer. When I left the meeting I referenced how it restricts the degree to which Governments can respond and how it leaves them with fewer options. Dr. Healy mentioned 2007 as almost being the ideal situation in terms of income distribution and so on. Unfortunately the country was bust and broke at the time and it was not able to pay its way. We have to be careful to never walk in those footsteps again. Since then we paid €60 billion to rescue all sorts of institutions that failed and we had to face the other challenge of Covid. That has not been a bridge too far but it was tardily and carefully crossed.

We have to look at a few things. I said to Dr. Healy 25 years ago that the biggest issue to affect the country in the next 20 years would be housing. That was a fact then and it is still a fact. The cost of housing to any family is a huge impact. We can have all the taxation increases we want but the amount that goes towards paying the rent or mortgage is the single biggest determinant in deciding how much money is available for the household to live on afterwards. Unfortunately we have gone in the wrong direction there and the Government is trying to catch up with it. We know that has been going on for the last number of years and we are making some progress but that progress is not in line with what we would need to be doing in order to alleviate the burden and threat on families that may be on the margins. There was a time back in the 1980s when it was possible for people to house themselves or be housed and every local authority in the country was able to do it. However, we had a debate and discussion on that and the whole system changed.

We are now in a different region so what do we do from here? We have to go for an increase in housing output in order to pull down that single biggest factor hanging over the heads of every family in the country, whether they be middle income or lower income. In the lower income brackets it affects the household much more. I am sorry to go on about this but it is something I have spent a lot of time talking about over the years. I have not solved the problem yet but the problem is solvable if we are successful in providing the number of houses that are needed to meet the demands. The economy will recover and it is recovering now. There will be a greater demand for housing in the next two years arising from people coming into the country, staying in the country and working in jobs that are available here. One only has to look at the recent reports on that.

I am glad to see that the number of jobs available to women has increased, particularly permanent jobs which is good. I am not saying this just because the women are listening but the mammies have always been seen to give a good economic example. They try everything and push hard all the time and they are at the coalface. They know how to do things themselves and they do it. I will rest my case for now. I thank the Chair for letting me in again and I am sorry for imposing at the end. Dr. Healy and I will have this debate again in about ten years’ time.

Neasa Hourigan (Dublin Central, Green Party)
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I thank the Deputy on behalf of mammies. Do any of our contributors want to respond to Deputy Durkan’s points?

Dr. Seán Healy:

I will take up two points, one of which I want to agree with and the other of which I want to disagree with. Let me put the point of disagreement first. We discussed this 25 years ago in 1997 and it was in the context of a new national agreement that was being negotiated and the community and voluntary pillar were in the negotiations for the first time. We were surprised because when one puts in all the pillars that were part of that negotiation, we were the only one to argue for increasing the supply of social housing. It was in that context that I was having this discussion with Deputy Durkan, who agreed with me but we did not have too many other people agreeing with us.

I want to clarify the other matter. I was not saying the income distribution situation in 2007 was good. I was just making the point that in 2007 the social welfare payments were indexed. That was the issue I was referring to. There was a whole lot of other stuff going on that we did not agree with at the time. All one has to do is look at our response to and analysis of the budget that year to see why we welcomed the indexation, benchmarking and so on. We disagreed with a lot of things.

I refer to the other point the Deputy is raising. We need both an indexation and a benchmarking of welfare payments and a dramatic increase in the housing supply. On the one side we have an incredible requirement at this moment because of waiting lists, HAP and all sorts of other stuff. The Deputy and Ms Murphy have already discussed our recent study on the implications of what is happening in housing for poverty and so on. One thing that is clear is we need dramatic interventions, not just in the next two years but over the whole decade because the scale of what is required is massive. What worries me in that context is that we are talking about a huge increase in the number of jobs and a lot of those will bring people in from abroad, which puts further pressure on the housing system. It is critically important that we get ahead of this loop. We need to benchmark and index welfare payments at the same time. We need to do it simultaneously rather than get trying to get housing done before coming back to welfare and other issues. Increasing the housing supply is the most important thing we need to do as a country, both economically and socially. We need it from both sides of that equation.

Bernard Durkan (Kildare North, Fine Gael)
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It goes to show we still agree on a lot of things.

Dr. Seán Healy:

Absolutely.

Neasa Hourigan (Dublin Central, Green Party)
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Deputy Canney wanted to come back in and I will bring Deputy Patricia Ryan in afterwards.

Seán Canney (Galway East, Independent)
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It would be remiss of us not to talk about one cohort that I have a particular interest in. As a member of the Committee on Disability Matters with Deputy Hourigan, it is important to say that while we are improving social welfare supports for people, our citizens who have disabilities have been left in the lurch and treated poorly and unfairly. One of the things that has come out of an Indecon report is that the costs of their disabilities on top of their normal living is an average of €9,000 per annum. In whatever context we try to rationalise and improve the lot of people who are on the poverty line, at the top of that agenda should be the rationalisation and implementation of a proper support scheme for people with disabilities. We must also give them the right to work and make sure that them going to work does not mean they will lose out on some of the entitlements they need to live.

This is something that we, as politicians, must put at the top of our agenda.

As we have delved into issues relating to people with disabilities, it has become more and more obvious that they are the forgotten in our society to a great extent. We are living with that now. We talk about the sins of the State through years and the wrongs that were done but, right now, we are living through one wrong, which is the way we treat people with disabilities. I ask the witnesses to comment on that. We talk about social justice and about making sure that everybody has the right to live. I have a document in front of me from the Jesuit Centre for Faith and Justice entitled Working Notes: Irish Policy at the Centenary. I was delighted to see that one of the articles therein which is about housing was written by my classmate from secondary school, Mr. Padraic Kenna. As well as looking back we need to look at what we are doing in the present and at the major wrongs that we can put right. I ask the witnesses to comment on that.

Ms Michelle Murphy:

Social Justice Ireland has been on the record as supporting a cost of disability payment for a long number of years. We certainly welcome the publication of the Indecon report which was long overdue. There is a vast amount of detail in that report on the different types of disability and the different types of costs involved. At a very minimum we have costed and advocated for a cost of disability payment to support those people with a disability with the additional costs of living that they face on a daily basis.

A report on a strategy for housing for disabled people was published two weeks ago and we strongly urge that the recommendations in that report be implemented, particularly in the context of adaptation grants and the suitability of new builds. It is important that new buildings are built in such a way as to be adaptable over time, both to provide for people who have a disability now as well as people who may acquire a disability into the future.

We have a very low employment rate for people with disabilities compared with other European countries. We have to look at how we support people with disabilities into employment and how we allow them to access certain schemes to which they do not have access at the moment. I refer to schemes like Tús or community employment, which should be open to people with a disability to help them to enter the labour market. The tapering issue that was highlighted earlier is crucial in this regard. It is essential that any additional supports that people with disabilities have are not lost overnight when they enter the labour market. There must be a tapering and a consideration of how the supports that individuals have interact with their income from employment.

Neasa Hourigan (Dublin Central, Green Party)
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Does that answer Deputy Canney's question?

Seán Canney (Galway East, Independent)
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Yes, it does. I thank Ms Murphy for that. We are all singing off the same hymn sheet here. It is a matter now of turning this into a reality. There is a need for action and we have a job of work to do there.

Neasa Hourigan (Dublin Central, Green Party)
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I could not agree more. Deputy Patricia Ryan is next.

Patricia Ryan (Kildare South, Sinn Fein)
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I am sorry but I had to leave the meeting for a period. I thank the panel of witnesses for their attendance here today. I apologise in advance if I ask a question that has already been asked. As Sinn Féin's spokesperson for older people, I assist a lot of people with issues related to the State pension. What is the panel's view on the indexation of pension payments and various benefits like carer's allowance and fuel allowance and also the indexation of various access thresholds?

Dr. Tom McDonnell:

I will start by saying that I agree completely with everything Deputy Canney and Ms Murphy just said. Of course, like all welfare rates, a constant disability payment should be indexed. In terms of Deputy Patricia Ryan's question, pension payments, carer's allowance and so forth should all be treated the same as all other welfare rates. They should all be indexed but adjusted to a particular benchmark which is based upon the cost of living for different cohorts. That benchmark would need to be established. There would need to be independent analysis to decide what the appropriate benchmark is but then the indexation, plus an adjustment to the benchmark, would be how to treat it year on year. That would be true for all groups, not just pensioners, people with disabilities or other groups. The UK has been pursuing a triple-lock model based on the highest from wages, prices or 2.5% but it is probably going to move away from that model. In my view, the wage indexation model would be sufficient over the medium term to ensure ongoing quality of life improvements and real disposable income improvements for the groups described by the Deputy.

Patricia Ryan (Kildare South, Sinn Fein)
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The witnesses were talking to Deputy Durkan about housing when I joined the meeting. I ask them to give their opinion on the indexation of thresholds for access to social housing and to outline whether they would favour a removal of some of those thresholds. What would their view be on using expenditure and debt to get rid of those thresholds?

Dr. Seán Healy:

We mentioned earlier that the European average for social housing is 20% of overall housing stock but in Ireland it is only 9%. One of the problems that goes with that is that income thresholds are kept low because we just do not have the houses to accommodate people. We are arguing very strongly for a dramatic increase in that. We are arguing for an increase in Ireland's social housing stock to 20% of the total stock, which is beyond what is being planned at the moment on any front. This is critically important. If we had a dramatic increase in the provision of social housing we would then be able to take a large number of people out of the private rented sector. We would save the HAP money they are getting at the moment and we would be able to put people into social housing. Obviously, cost-rental is in the mix as well. We would be very supportive of cost-rental as the next stage up in terms of development. If we could take a substantial number of people out of the private rental sector, we would take a major step towards stabilising the market, a market in which people are paying nonsense rents of €2,200 per month a two-bedroom apartments.

We would also support what Dr. McDonnell was saying about indexation of pensions and of thresholds and would agree that the wages would do the trick rather than the triple lock. They used that model in the UK. It fits a particular moment but I do not think we are in that moment here, at this stage. We should accept wages as the basic benchmark for indexation and then pick the numbers at which we are going to pitch welfare and pension rates. Obviously, we need research to work out what is required, ultimately, to live life with dignity so that we know where to put those marks.

Patricia Ryan (Kildare South, Sinn Fein)
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Are there any potentially negative consequences from indexation?

Dr. Tom McDonnell:

Broadly speaking, there are very few. The only potential or arguable downside is that it reduces the flexibility of the Department of Finance or the Department of Public Expenditure and Reform to allocate funds in a way that is deemed optimal. It could reduce departmental ability to determine how to use the fiscal space of €4.5 billion, or even more if taxes are increased. That loss of flexibility is the only real downside but indexation would probably use up less than one third of the entirety of the fiscal space so it certainly would not preclude the Government from engaging on any of the major policy initiatives that it would want to pursue.

It is fiscally neutral, which is good from a public spending and taxation point of view in the long term. It means bond markets, or whoever it might be, can look to the future and know, broadly speaking, how much will be spent. This increases the reliability of the Irish Government. This should have benefits for how we are perceived. It is completely affordable from this point of view. It depoliticised this very sensitive issue so we do not have a situation whereby people are under-served for three out of five years and then there are big boosts just before an election. This creates a volatility in household income which is bad for everyone.

There is a tendency to increase welfare rates disproportionately during the good times. This tends to amplify booms and make recessions worse. People on welfare tend to be punished during recessions. The indexation effectively protects household income and makes it more reliable. It also prevents deterioration in income inequality. The benefits dramatically outweigh potential costs. The only potential cost is theoretical. It reduces options in other areas.

Dr. Seán Healy:

It is much more likely to turn out in the long run to be a fairer process. Dr. McDonnell has made a point about politicising the issue. This happens over and over again. Suddenly before an election there are big payments. These payments do not pay the bills that vulnerable people had to pay over the previous three years. There would be a freeing up of airspace to discuss other policy issues. This would be positive from our perspective. There would be many positive elements to it.

Neasa Hourigan (Dublin Central, Green Party)
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As no other speakers are indicating I will finish the session. This was our first session and I thank our witnesses. They have given us a fantastic grounding in the conversation today and in their excellent opening statements. I thank them for their time. I hope when we write our report we can do their work justice. I thank Dr. McDonnell, Dr. Healy, Ms Murphy and Ms Rogers for their attendance and assistance to the Committee on Budgetary Oversight.