IMF marks Ireland down on youth unemployment

Ireland has received good marks from the IMF over the ways it redistributed taxes to prevent a potential social disaster during the financial crisis, but the country misses out on top marks on the ways it tackled youth unemployment.

IMF marks Ireland down on youth unemployment

Ireland has received good marks from the IMF over the ways it redistributed taxes to prevent a potential social disaster during the financial crisis, but the country misses out on top marks on the ways it tackled youth unemployment, writes Eamon Quinn. 

The Washington-based fund—which was the junior party in the troika during the country’s painful bailout — has published a hugely significant report on how the peoples of the EU fared during the global financial crisis.

The publication of the report is timely. Atop a Swiss mountain in Davos, world leaders this week are mingling with the world’s most powerful bankers and the heads of the technology giants.

There is much excitement in Davos about the effectiveness of US corporate tax cuts, even though there is scant evidence that the billions in tax revenues foregone by the increasingly-indebted US will trickle down to heal the gaping wounds of inequality in America. Such experiments have of course failed in the past.

Davos has its part in discussing the global social issue of inequality. However, the heads of the world’s largest companies are transfixed by the prospects of hugely increased dividend payouts to their shareholders — which is helping to drive the value of their companies and propel US stockmarkets to new and dangerously elevated levels.

Ten years after from the onset of the financial crisis the focus has already moved. Financial markets breathed a sigh of relief after the vote by an inward-looking UK to reject the EU, and the election of Donald Trump as US president didn’t lead to the rise of anti-establishment governments, following the string of elections across Europe last year.

That’s why the IMF’s report focus on inequality is so important: It shows the social wounds caused by the crash have not healed.

Its 51-page report, Inequality and Poverty Across Generations in the European Union, is accompanied by a blog by its managing director Christine Lagarde, which focuses on youth unemployment.

She says that Europe is certainly not the only region where its young people face troubled futures, and because of redistribution of tax revenues across Europe, “at first glance, inequality does not seem to be as big a threat in Europe as elsewhere”.

However, Ms Lagarde delivers a punchy warning: “Beneath the topline numbers, however, there is a worrying trend: The gap between generations in Europe has widened significantly. Working-age people, and especially the young, are falling behind. Without action, a generation may never be able to recover.”

She writes: “As a consequence, one in four young people in the region are at risk of poverty—living with incomes below 60% of the median.”

Ms Lagarde points to Germany and Portugal (like Ireland one of the worst countries in the EU to be hit by the crash) for having the best policies in reducing sky-high youth unemployment. In Germany, its “long-standing” system of apprenticeships served the country well; in Portugal, young, first-time job holders did not have to pay social taxes for three years, she says.

The main IMF staff report shows the policies on which Ireland did well during the crisis to stop social inequality widening further. Ireland, along with the Czech Republic, gets top marks for targeting benefits on those most at risk of poverty by “means-tested social transfers”.

“Ireland combines a progressive tax system with a high share of means-testing of social benefits,” according to the report.

“Ireland’s welfare system performs strongly in mitigating income inequality and poverty. Social benefit spending in cash — in purchasing power and per capita — is in line with the EU average but its welfare system seems to be more focused on poverty reduction, measured by the difference between the share of population at risk of poverty before and after transfers, than on income redistribution.

“However, if pensions are excluded, Ireland’s efficiency in redistributing income and fighting poverty is well-above EU peers. This suggests that the degree of income redistribution that other EU countries achieve through pension spending, is achieved through social benefits in Ireland and direct taxes,” it concludes.

The report card on Ireland is therefore mixed: The country is praised for its redistributive efforts through the tax system that stopped more citizens plunging into poverty.

That’s a message that may well be ignored by politicians in future election campaigns here. Ireland’s record on tackling youth unemployment is, however, not top of the class: Portugal appears to have done much better. Across the rest of southern Europe, the picture still looks grim: Incomes have fallen and most age groups, apart from the elderly, have experienced rises in poverty.

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