Joan Burton (Dublin West, Labour) | Oireachtas source

I acknowledge the positive elements of the Private Members' motion before the House. I will discuss the elements of it that I do not think reflect what actually happened in the budget. This debate gives us an opportunity to discuss an important aspect of the making of budgets. The motion acknowledges the "positive signs of economic recovery" and "the social impact analysis and the pre-budget consultations carried out by the Department of Social Protection". I am sure Deputies are aware that as Minister for Social Protection, I have significantly expanded the pre-budget consultation to involve more groups and made the social impact analysis much more detailed.

I will refer briefly to the famous ESRI SWITCH analysis models. As Deputy Donnelly will know, they have been around for a very long time in the Irish situation. They probably constitute the best-known form of budgetary analysis. For a number of years, the immediate post-budget analysis has included the initial results of the SWITCH model, which measures the direct impact of tax and social welfare measures on the distribution of income. I emphasise in the context of this debate that the model measures the impact of budgetary measures in that way. If we are to debate the model, it is important to emphasise at the outset that many things are not in the SWITCH model and certain things are in it. The most recent post-budget SWITCH analysis considered the combined impact of the 2015 budget and the introduction of water charges. While this analysis is very useful in tracking the impact of budgetary measures, its designers acknowledge it is a partial analysis that does not take account of everything that counts in terms of the overall impact of a budget.

Most but not all of the tax and benefit measures in last month's budget were included in the SWITCH analysis. A number of key measures were excluded from it. The model is the model. The ESRI chose the measures. The back to work family dividend was among the items that were excluded. When the dividend comes into effect, it will be worth €30 a week in respect of the social welfare payment per child. The qualified child increase will be worth €90 a week to a family with three children when someone moves back to work. As Deputies will appreciate, it is a significant back to work incentive. The effective abolition of the bank levy was also excluded from the SWITCH analysis. Deputies will recall that the bank levy was levied at 0.6% essentially on people in defined benefit schemes. It was a significant contribution to economic recovery by pensioners who rely on their defined benefit incomes. Its abolition, which was not included in the SWITCH model this year, is potentially of enormous significance for those pensioners depending on how their trustees treated the pension levy.

The effect of some other budgetary measures, such as the water tax credit and fuel allowances, was estimated in the SWITCH analysis. As Deputies will be aware, the water charges have now been capped and significantly reduced. The credit is now the water conservation grant. It has been changed very significantly. In effect, it is now a universal €100 payment to householders who apply. It is clear that consideration of the revised water charges package, which includes a significant reduction of over one quarter in the gross charges and a more substantial mitigating measure in the form of the water conservation grant, would alter the initial SWITCH results. While these exclusions or estimates are likely to make a significant difference, other more fundamental factors are also important in judging the merits of the budget.

While the social welfare package in the budget is important in scale and design - it is worth almost €200 million and provides for the first increase in social welfare rates since 2009 - it accounts for less than one third of the expenditure measures in the budget. The large increase in the health budget, which involved the allocation of over €300 million in additional resources, was excluded from the SWITCH analysis. The Deputies who mentioned the UN guidelines will be aware that access to health resources is seen by the UN as being of critical importance in terms of human well-being. The €2.2 billion social housing programme, which will increase expenditure on public housing to €800 million in 2015, was also excluded from the SWITCH analysis. This programme will have huge implications for the well-being of communities that will be affected by the provision of additional housing. The expenditure of €800 million will also produce benefits for employment and the economy. It will enable people to go back to work and stimulate spending in the economy. The SWITCH analysis does not seek to capture any of that because it measures precise items.

The increase in education spending, which will fund an additional 1,700 new full-time posts, 920 mainstream teachers, 480 resource teachers and 365 special needs assistants, is also excluded from the SWITCH analysis. Its designers acknowledge that the SWITCH model measures first-round effects only, and does not consider their impact on the labour market. Clearly, the goal of getting people back to work is absolutely central to my involvement in the budgetary process. Similarly, the SWITCH model does not consider the stimulus effect on the economy in general. In this context, the design of the budget and the scale of the adjustment are of vital importance. We need to consider the impact on the economy of the 2015 budget, which put over €1 billion of spending power back into the economy.

It included in its design a number of reforms designed to help the unemployed return to work, to facilitate the transfer of land to young farmers and to support small family business. These measures will boost potential growth, increase employment and generate a significant social dividend.

Contrast this with the Fianna Fáil budgets from October 2008 to April 2009, which took €9.5 billion out of an economy that was in free fall following the bursting of the property bubble that Fianna Fáil had done so much to inflate. In particular, it is worth considering the October 2008 budget. It relied mainly on income tax increases and levies - later replaced by the USC - and cuts to public sector pay. While these measures hit the better off hardest, they also had a devastating impact on the incomes of low and middle-income families. Fianna Fáil is not present at the moment, but it is surely cold comfort to those who are barely keeping their heads above water to hear that those on the highest incomes were taking a bigger hit. This is one of the problems with recent analysis because, while that may have been the case in 2009, the 2010 and 2011 Fianna Fáil budgets were unquestionably regressive. They included, for example, across-the-board cuts in social welfare rates of 8%. Fianna Fáil cut the carer's allowance, the blind pension, the widow's pension, the Christmas bonus and child benefit and unilaterally imposed pay cuts on public servants totalling more than 14% in February and December 2009. As Deputy Maureen O'Sullivan knows, the cuts in quite a number of the weekly social welfare rates amounted to more than €16 per week. People ask me why I emphasise the weekly rates. The answer is that, for the people who rely on social welfare whom I represent and with whom I deal, this weekly rate cut was staggering.

Contrast this with Labour's record of protecting core social welfare rates, targeting increases this year - the living alone allowance and the Christmas bonus, which I am happy to say will commence being paid next week - and reducing, then cutting outright, the impact of USC this year, in which regard we removed a further 80,000 people from the net and reduced the first two rates of USC by 0.5% each. Let us be fair. By all means, count all of the measures that make up a budget, but please measure everything that counts in judging its fairness.

A more considered judgment on the impact of a budget on the economy and on income distribution in particular can only be undertaken with the passage of time and after direct and second round effects have been worked through. Such analysis was undertaken by Professor John FitzGerald and published in the ESRI Quarterly Economic Commentary during the summer. He used a measure of income inequality known as - I have had to come to terms with its name in recent years - the Gini coefficient, involving before and after tax and social welfare measures in the period from 2005 to 2012. He concluded: "As discussed above, the effect of public policy in Ireland, acting through the tax and welfare systems, has been to produce a significant fall in the Gini coefficient." I am sure the coefficient is famous among economists and that Deputy Donnelly is familiar with it, having taken many classes on it. It measures fairness and the levels of equality and inequality in society. Internationally, it is reckoned to be the best measure of fairness. This is the reason I have raised it. The effect of public policy has been to produce a significant fall. I hope I am right in stating that, if the Gini coefficient is zero, it means there is an equality of income across society. The higher the coefficient, the more unequal that spread becomes. The Department and the ESRI are working with line Departments to improve the capacity of the ESRI's SWITCH model.

I strongly believe in the kind of consultation that is outlined in the motion. As a Minister, consultation has been of great benefit. Sometimes, the process can be difficult. One is sitting down with individuals or organisations that find some of the things that have happened extraordinarily difficult to bear. I understand why. My job as Minister is to help to reconstruct the economy and assist those in the most difficult situations to recover. It has taken a great deal of time, particularly given the difficulties in the eurozone.

The Secretary General of my Department has written to all Departments to encourage them to undertake similar social impact assessments on budgetary measures. In addition, my Department has provided additional funding to the ESRI to improve the capacity of the SWITCH model. Indeed, it was one of the first measures I sought upon becoming Minister. This kind of economic analysis is important, but it does not mention everything.

The Department publishes an integrated social impact assessment of the budget that includes the main welfare and tax measures. Its purpose is to inform public understanding on the cumulative effect of budgetary welfare and tax policies on income distribution and social equality. Unfortunately, due to the requirements of budget confidentiality, it is not possible to publish in advance the results of the analysis. Deputy Donnelly has raised this point. Perhaps the committee system should consider using the analysis as a serious tool for its own work. There is a great deal of scope in that regard.

The Department has examined the impact of the main welfare budgetary measures that were announced on budget day 2015. I was elected leader of the Labour Party on 4 July. From 8 a.m. that morning until 1.30 p.m., when I am afraid my curiosity about the count in the leadership contest got the better of my desire to stay for longer at the pre-budget forum, I spent time with a significant number of organisations that every Deputy would be familiar with, for example, the Society of St. Vincent de Paul and organisations representing carers, families, older people, the unemployed, etc.

According to our social analysis, there has been a larger impact on the bottom two quintiles of approximately 0.6%, some three times the average gain. The gain for the middle and top quintiles is smaller at 0.1% to 0.2%. The largest impact for families is among non-earning couples with children at 0.9% and lone parents at 0.8%, followed by the single retired at 0.7%. The smallest gains are among working households without children. The distribution of the additional welfare expenditure is concentrated on the bottom two quintiles, accounting for 57% of the total extra spend. This is twice the share going to the top two quintiles at 27%. The percentage of the population at risk of poverty will fall as a consequence of the welfare measures by more than 0.1%, rising to over 0.2% for children.

The response of the Opposition understandably might be to ask why the Government could not do more. It was limited and restricted in the amount of the package it could deliver on both the tax and social welfare sides. Members will have seen this morning the analysis of the Irish Fiscal Advisory Council. While its primary advice to the Government was to go for the deficit target, which it reached, it also repeated today that the Government rally should have opted potentially for a further €2 billion in cuts. There are voices and that is why this debate on the budget is important and significant and Members should have the chance to look at all the advices.

I will mention some of the welfare measures contained in the budget, which include the back-to-work family dividend of €90 per week for people going back to work who have three children. The improvement in child benefit of €5 per month is small but significant. It usually is paid to the mother, as the caring parent, is paid universally and is not means tested. The living alone allowance was mentioned to me repeatedly by organisations representing older people and those with a disability and will increase from 1 January by €1.30 per week. The free travel scheme - another favourite item on the part of pensioners - was protected fully, while the top one was to keep intact the weekly rate of the pension. From next week, the Christmas bonus is being partially restored at a rate of 25%. This will benefit almost 1.2 million people, although those about whom we know most are pensioners and people with disability. A pensioner couple should get something more than €100 and while this will not pay for Christmas, it will be a small help and a small step on the road to reconstruction and recovery.

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