Written answers

Tuesday, 24 October 2017

Photo of Maureen O'SullivanMaureen O'Sullivan (Dublin Central, Independent)
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16. To ask the Minister for Finance the way in which the recent budgetary measures will reduce levels of poverty. [44700/17]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The impact of the Budget on poverty levels is assessed using the ESRI SWITCH model, which is a tax-benefit micro-simulation model used by Government Departments, including my own, to assess the distributional impact of the Budget.

The Department of Employment Affairs and Social Protection (DEASP) will produce and publish a Social Impact Assessment of Budget 2018 in the coming weeks on their website. This will use the SWITCH model to consider the impact of the Budget on poverty levels, in particular how the ‘at risk of poverty’ rate changes as a result of the social welfare and tax measures contained in Budget 2018. My Departments provide inputs to DEASP when they are preparing the Social Impact Assessment. However, preliminary analysis carried out by my Departments indicates that, in overall terms, as a result of Budget 2018, households experience an average increase in the order of 1% in weekly disposable income. Gains are highest for the first (lowest income) quintile at over 2 per cent and lowest for the fifth (highest income) quintile at below 1 per cent, pointing to a progressive Budget package. Notwithstanding the usefulness of SWITCH in providing results which are representative of the full population of households in Ireland, it has a number of notable shortcomings. It does not, for example, model the impact of expenditure on public services such as health or education, which has an important impact on alleviating poverty.

As a tax-benefit model, however, SWITCH does show the impact of tax and social welfare changes announced in the Budget. I note that Ireland has the second most progressive income tax system in the OECD, meaning that those on higher incomes pay proportionally more in tax than those on lower incomes. By definition, this implies that any tax reduction will benefit those who earn most. The SWITCH model results for the Budget tax package reflect this fact; it is a consequence of having such a progressive tax system in the first place.

The CSO produces statistics on poverty using the Survey of Income and Living Standards (SILC). The survey provides data on household income, poverty and deprivation rates, and income inequality. The latest SILC data relate to 2015 and indicate that the ‘at risk of poverty’ rate in Ireland was 16.9%, below the EU28-average. The ‘at risk of poverty’ rate represents the percentage of the population in households where equivalised disposable income per person is less than 60% of the median.

If all social transfers were excluded from income, the ‘at risk of poverty’ rate would have been 46.3% in 2015, according to the same survey. I note that the difference between two rates points to the effective role of the overall social welfare system in combatting poverty.

This is also reflected in the fact that Ireland’s Gini co-efficient for disposable income is below the OECD-average (2014 is the latest year for which data are available). The Gini co-efficient is the most common measure of income inequality and the lower it is the lower the level of income inequality. Indeed, Ireland’s tax and welfare system lead to the largest absolute reduction in income inequality in the OECD.

In summary, the discretionary measures announced in Budget 2018 will result in income gains, with the greatest impact for households on the lowest incomes. I look forward to seeing DEASP’s assessment as to its impact on poverty. I reiterate that the tax and social welfare system overall continue to reduce income inequality and reduce poverty in Ireland.

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