Dr. Karina Doorley:

Those two issues are very related. The continual use of temporary measures makes it difficult to model what the poverty rate is. Should they be included or not? It is kind of an open question. We do not have much evidence on how lump sum payments are spent, for example, whether they are treated as current income by households or spent on one-off purchases. The framing of a payment can have a lot of influence on how it is treated by the household. We do not have much good evidence on how that is currently playing out in the Irish context.

Then there is the question of whether those payments should be included in income when we are estimating poverty and inequality rates. What we have shown in our post-budget analysis is both, really, but I would very much focus on the change in the poverty rate brought about by the permanent tax and welfare system, for two reasons. The first is that when we are modelling these changes, we do not have temporary measures in our baseline. We are therefore comparing the effect of permanent and temporary changes to a baseline that does not have any temporary measures in it, so it is not really reflecting a change in living standards, if we accept these payments are improving living standards each year. It makes more sense to focus on the change in the poverty rate brought about by permanent changes to the tax and welfare system.

While there might have been a very good case for relying on temporary measures during the pandemic and the cost-of-living crisis, because we did not know how long inflation was going to last or if indeed it would unwind quickly, there is much less of a case for that now. We are in a situation where we have a permanent higher level of prices and there is no need to use temporary measures to cushion household incomes in that scenario. We are not really doing it for higher income households. We are permanently changing the parameters of the tax and welfare system so there is no fiscal drag. I do not see a good reason not to do that for lower income households and for social welfare rates, because it affords certainty to those households. If people are relying on temporary payments from year to year and do not know if they are coming, it is very hard to plan and hard to smooth consumption. We should be focusing on the permanent tax and welfare system and how that is changed because when the temporary measures run out next year and if there is no repeat of them, we are likely to be in a situation where income inequality has risen compared with a couple of years ago because while the permanent features of the income tax system have progressed, more or less, in line with inflation, that is not true for the permanent features of the welfare system.