JIM POWER: Target social protection to rein in all budget spend

Economics is basically the study of how to allocate scarce resources to achieve the best possible outcomes. The problem is that resources are by definition limited in supply and demands are virtually insatiable, writes Jim Power

In general terms, we all want the best quality public services such as health, law and order, education, public transport, broadband coverage, social housing, and public infrastructure, to name but a few.

Unfortunately, in the real world, it is impossible to satisfy all of these demands, primarily because resources are limited.

Hence choices have to be made and the opportunity costs of every euro spent or foregone by Government needs to be considered.

The other big problem, of course, is that getting agreement on “the best possible outcomes” is impossible.

So, for policymakers, the reality is that it is impossible to please all of the people all of the time and whatever decision is taken will be criticised.

Nowhere is this dilemma more pronounced and acute than in the preparation and presentation of the annual budget.

Over recent weeks the Department of Finance has been publishing papers on the various categories of taxation, examining the realities and possibilities.

On the expenditure side, the Department of Employment Affairs and Social Protection has just published a paper looking at the social protection situation and outlining the possibilities for Budget 2019.

The facts on the existing social protection situation are quite stark.

At the end of May 2018, there were 1.3m persons in receipt of a weekly social welfare payment in respect of two million beneficiaries; a further 625,300 families received a monthly child benefit payment in respect of 1.2m children.

Of the weekly welfare recipients, 616,200 were in receipt of a pensions payment; 205,560 were in receipt of jobseeker’s payment; 194,010 received a disability allowance or an invalidity pension and 79,910 were in receipt of carer’s allowance or benefit.

The department concludes that social protection payments directly or indirectly impact on the lives of nearly everybody in the State.

The department also points out that throughout the recession social transfers performed strongly in reducing the at-risk-of-poverty rate.

In Ireland, the impact of social transfers in reducing poverty is one of the highest in the EU due to the progressive and targeted nature of the social protection interventions.

One of the other conclusions reached is that Ireland, compared to other countries, may be overly dependent on monetary social transfers.

During the recession, social protection expenditure was subjected to a wide range of measures to control overall spending, but since 2015, successive budgets have been used to reverse much of the damage.

Between 2015 and 2018, budgetary measures have delivered an increase of 5.6% in the value of pensions, and most other welfare payments have seen an increase of 2.7%.

Inflation increased by 1.8% over the same period.

The net result is that in real terms, pension payments are now 5.3% higher than their 2008 levels, but most other payments are 3.7% lower in real terms.

The department believes that the policy focus should now be on people with dependent children who are unemployed, lone parent families, and families on low income with children.

Willie O’Dea of Fianna Fáil will not be happy with that prospect and wants payments to be increased.

Listening to popular discourse in this country, one would be led to believe that Ireland does not spend very much on social protection.

The reality is that this year we will spend just over €20bn on social protection, which is equivalent to 38% of gross current government expenditure.

To put in in context, this will account for over 37% of total taxes collected and almost all of the income tax and USC will be swallowed up by social protection expenditure.

It must be remembered that those who create economic activity and jobs are the ones who generate the resources to fund this expenditure and all of the other expenditure undertaken by the State.

In Budget 2019, those generators of jobs and tax revenues should be given due consideration and respect.

All types of expenditure must be controlled and a much more targeted approach to social protection is warranted.

An examination of the scope for means-tested payments would be a step in the right direction.

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