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.