Government should raise tax rate, says ESRI

IRELAND needs to raise its top rate of tax to 53c if we are to tackle the huge number of people at risk of poverty and bring our social welfare system in line with the best in Europe, an Economic and Social Research Institute (ESRI) study revealed yesterday.

But the Government ruled out such an increase in the upcoming Budget yesterday, with Social Welfare Minister Mary Coughlan saying it would cost €2.4 billion and be “self-defeating” because it would weaken our competitiveness.

The ESRI study found that Ireland has the highest number of people at risk of poverty within the EU - 21% - compared to the average of 15%. The yardstick for measuring those at risk of poverty here is anyone living on or below €14,000 - half the average industrial wage.

One of the main reasons Ireland has the highest number of people at risk of poverty is because we have a less generous and less comprehensive social welfare system than other EU countries, said the ESRI report, entitled Why is Relative Poverty so High in Ireland?

By contrast, Denmark and the Netherlands have the best EU records on social inclusion and they achieved this through higher taxes and improved social welfare payments.

“Simulation with a tax-benefit model shows that raising Irish welfare coverage and support rates to Danish levels would substantially reduce the numbers ‘at risk’ of poverty,” said ESRI research professor Brian Nolan.

But funding Danish-style payments rates would mean substantial extra tax - raising the standard top rate of 42c by 11 percentage points to 53c.

However, not all those living below €14,000 are poor. There is another measure of poverty - consistent poverty - which also takes into account a person’s level of deprivation and their ability to buy food, fuel and clothes. This yardstick shows that just 5.2% of Irish people are living in consistent poverty.

Ms Coughlan, who commissioned the report, said she was glad the ESRI pointed out that consistent poverty shows that many regarded by the EU as being at risk of poverty are homeowners and the elderly who have many benefits-in-kind such as free electricity, fuel and TV licences.

But she warned that it would cost €2.4bn to bring Irish social welfare rates in line with the Danish levels - almost a 25% rise on current levels.

“I would be concerned that such a huge spend on social welfare would seriously weaken our economic competitiveness and crowd out needed extra expenditure in health education and housing,” she said.

More in this section