Jobs are key to tackling welfare dependence

One of the more controversial issues that the commentariat tends to focus on periodically is the relationship between social welfare and work.

A recent evidence- based report from the Citizens’ Information Board highlighted cases where somebody who decides to take a job is actually worse off financially due to the social welfare benefits that are lost.

It is a ludicrous notion that a decision to take a job actually makes somebody worse off financially. In the aftermath of the budget — and specifically the decision to reduce unemployment benefit for those under 25 years of age — the issue of the appropriate level of social welfare payments for the unemployed has come centre-stage again.

Not surprisingly the decision to cut unemployment benefits for the under 25s, the Taoiseach’s expressed aim of tackling social welfare dependency and Social Protection’s letter campaign explaining to welfare recipients how they would be financially better off in employment have elicited predictable responses from predictable sources.

However, in an environment of serious fiscal austerity, it is incumbent on Government to seek to reduce the level of social welfare expenditure to the greatest extent possible. We spend over €20bn on social expenditure, which is greater than the total income tax take expected in 2014. For workers and businesses that pay the tax that funds social expenditure, the least that can be expected is that the money is spent wisely and that savings are made where possible. It is also important to ensure that a social welfare dependency culture is not allowed develop. The main purpose of the social welfare system is to provide a social safety net.

On the other hand, it is equally obvious that if there is to be any prospect of breaking the social welfare cycle, employment opportunities have got to be created. Some limited progress is being made in that regard. In the year to June, the economy created an extra 33,800 net new jobs, virtually all of them in the private sector and 64% of them full time. This represents significant progress, but there is obviously still a long way to go.

This reality was very apparent in the approach adopted in last week’s budget. Given the very tight fiscal constraints, the Government is obviously quite limited in terms of what it can do, but what has been done to date does deserve praise.

The decision to persist with the 9% Vat rate for the tourism and hospitality sector for another year is recognition that the tourism sector created at least 6,000 new jobs last year.

Whether this job creation is totally attributable to the lower Vat rate or not is far from clear, but the sector is creating jobs and it was probably sensible not to risk damaging the momentum.

The other key element of the job-creation aspect of the budget was directed towards the construction sector. Introducing an income tax credit of 13.5% on eligible expenditure on home renovation between €5,000 and €30,000 carried out by registered and legitimate builders for 2014 and 2015, should give rise to increased activity for beleaguered builders. House owners, who decide to avail of the tax break, should be mindful of the possibility that builders will add the value of the tax break on to the price of the job. Hopefully, there is sufficient competition and unemployment amongst builders to prevent this from happening, but such tax breaks can often be added on to the price of the good or service. For example, many of the old tax breaks available on property were well built into the price paid on day one.

If the social welfare spend is to be reduced and if a culture of welfare dependency is to be prevented or broken, employment opportunities have to be presented. This should be the mantra of policymakers in the remaining lifetime of this government and thereafter.