IMF calls for further cuts to welfare

Social welfare benefits, medical cards, and children’s allowance are costing the country too much and must be cut, the IMF said as it completed its latest inspection of the country’s bailout programme.

The head of the IMF’s mission to Ireland, Craig Beaumont, said only families that are “relatively less well off” should be entitled to child benefit.

The payment of €140 a month per child costs the State 1.3% of GDP, and payments have already been trimmed in recent budgets.

Mr Beaumont also called for greater restrictions to be placed on the number of people entitled to medical cards.

“The cost of those medical cards will keep on rising,” Mr Beaumont told a press conference at the end of the troika’s 10-day visit to Ireland. “One way you can contain that is to look to some means-testing on eligibility.”

His comments mirror those of the European Commission, which suggested in its latest report that the Government means-test elderly people before giving them the services all over-70s are currently eligible for, such as gas and electricity allowances, free TV licence, free public transport, and telephone allowance. Currently this costs the State about 0.3% of GDP a year.

The commission warned that the situation is being made worse by the number of young people emigrating — more than 70,000 left last year — and said the country could find it difficult to meet the cost of pensions.

The IMF also called for certain welfare payments to be means-tested in an effort to combat long-term unemployment. It said high dole payments were a disincentive to find work.

However, in a separate IMF report dealing with the eurozone, the body shows that, even with changes to the welfare system, the possibility of finding a job for the 304,000 out of work in Ireland will be very difficult. It says the country’s GDP would need to grow at an average of 4% a year to get unemployment back to pre-crisis levels, but predicts just 0.5% growth this year.

Meanwhile, although the troika favours lowering the minimum wage and cutting wages, the Paris-based OECD recommends subsidising pay by reducing employer social security contributions, giving in-work tax credits that could be phased out as incomes rise, and lowering marginal tax rates for low-wage earners.

According to the IMF report, Ireland will have to continue to consolidate by cutting State spending and raising more taxes at least until 2015, and has so far reached only the halfway mark in consolidation.

It also warns that the State must compensate for any possible shortfall in revenue during the second half of this year if growth weakens to help protect the fragile recovery.