Dr. Karina Doorley:

I will try to work backwards. I do not think that we would say that indexation is definitely the best policy. This ultimately comes down to the political trade-offs and what is the best thing to do with the available budget. Indexation gives a measure of certainty and security to families who know that if their incomes are to increase, they will not suddenly lose access to their national childcare scheme, NCS, subsidy, to their medical card or something like that. It also avoids a bracket creep and it ensures that income inequality and poverty will stay relatively constant as the default.

However, there is always a role for a discretionary policy to override some of those things. We would not necessarily say that it should be the case that the default should be indexation. Dr. Keane and I always argue that we should compare whatever policy changes that are made to an index system, so that we can see how income distribution is deviating from thestatus quo. Even if it becomes the policy, there is still always a role for discretionary policy, if the Government objective is to increase tax on high earners. There can always be a discretionary policy that can operate alongside indexation.

I should say as well that in many countries that operate indexation, whether this is price indexation or wage indexation, there is often an option for a government to pause it, or for it to say it does not have the budget this year. Therefore, it can be the default policy for as long as the budget is available. What we tend to see is that even over time the policy within a country can change from year to year. I am not sure if I have answered everything.