Social Justice Ireland welcomes the opportunity to speak to the committee on chapters 9 to 12, inclusive, of the report of the Commission on Taxation and Welfare and we thank the Chair and the committee for the invitation. While we have confined our statement to the chapters specified, we would welcome the opportunity to engage further with the committee on other aspects of the report, as we have done previously. There are some other aspects on which we have some ideas that have not yet been covered.
When the commission was established, we welcomed it and, in particular, its broad remit, which reflected an understanding of the integrated nature of the taxation and welfare systems in the lives of individuals, families, companies and communities and the importance of Government policy being framed in this overall context. Social Justice Ireland has an established record of engaging on policy issues regarding the taxation system and the welfare system. These form central components of our annual socioeconomic review, Social Justice Matters, which we publish every year, our annual pre-budget document, Budget Choices, and our annual post-budget analysis and critique publication. Frequently, these topics also frame our annual social policy conference and associated publications and our regular engagements with Oireachtas committees, including this one, political parties and national bodies such as the National Economic and Social Council, NESC. While Social Justice Ireland has previously made a submission on all four chapters on which we are reflecting, and we are happy to engage in discussions based on that written submission in questions with members, for the purpose of this opening statement, however, given our time is limited, I will confine my remarks to recommendations made in chapter 10, Labour Markets and Social Protection Systems.
Social Justice Ireland supports many of the recommendations contained within this chapter, in particular recommendation 10.3 in respect of extending PRSI to share-based remuneration, usually provided to higher earners; recommendation 10.6, in respect of charging the higher rate of PRSI on unearned income and passive income such as rent; and recommendation 10.7, to remove the cliff edges in the taxation and welfare system.
However, we disagree entirely with both recommendation 10.8 and the analysis underpinning it. Recommendation 10.8 relates to the dismissal by the commission of a universal basic income. We believe, however, that the analysis underpinning this recommendation contains serious errors of fact and errors of logic.
The first factual error relates to the required tax rate. In its limited analysis, the report referred to a 1994 study by the ESRI as follows, "In 1994, the ESRI conducted a study and found that a tax rate of 65 percent would be required to finance the basic income system proposed." However, the report did not go on to refer to another study carried out by Professor Charles Clark which found that a full basic income could be delivered for a tax rate of 47%, 48% or 49% percent, depending on the exact parameters used. These tax rates would replace not only income tax but also employee PRSI and levies and would apply to all personal income except for the basic income itself.
Neither did the report refer to work which was commissioned by the steering group which authored the Government’s Green Paper on basic income. The steering group drew up parameters for a full basic income and commissioned both the ESRI and Professor Clark to estimate the tax rate that would be required for this basic income model. The ESRI reported that a tax rate of 51.6% would be required. This was a significant reduction on its earlier claim that a tax rate of 65% would be required for a full basic income.
Professor Clark reported that a tax rate of 47.26% would be sufficient to fund this basic income model. As both authors had costed the same model, the basic income steering group was disappointed that there remained a significant divergence between their results. Accordingly, it asked the Department of Finance to estimate the tax rate. This is quite significant because it handed the work over to the Department of Finance and the Department reported that a tax rate of 47.6% would be required. The steering group accepted the Department of Finance estimate, which it rounded up to 48% in its report. This is the figure which was quoted in the Government’s Green Paper. In this report, the only tax rate that is quoted by the commission is its claim that it is 65%, a figure which was overtaken by the ESRI’s own studies subsequently, but notwithstanding that, the ESRI’s original numbers had been rejected by the Department of Finance which had concluded that 47.6% would be the rate for tax which would cover both income tax, PRSI, levies and so on. Given those facts and what the commission misreported, we argue that the recommendation it makes is inappropriate, misleading and erroneous.
The second factual error relates to the cost of basic income. The commission’s recent report states, “Moving from our existing mixed model to a universal basic income model would be a fundamental and very costly change in policy – from both a social welfare and tax perspective.” All costings of proposals have been made based on Exchequer neutrality, however, so there was no additional Exchequer expenditure expected. It should be borne in mind that in the previous budget, for example, tax cuts alone amounted to about €1.2 billion. There is always very substantial additional money available, budget by budget, but in the calculation on basic income, nothing was allocated - no additional money. Therefore, to say it would be a very costly change in policy is simply misinformed at best.
The third factual error concerns the impact on poverty and the distribution of income. The commission’s recent report states that the ESRI “report concluded that such a high tax rate would be a disincentive to people taking up employment and that the income distribution effect of the proposal did not benefit many low-income households, thus making a basic income unviable in Ireland”. Based on ESRI analysis, however, the Green Paper reported that “70% of household[s] in the bottom four deciles would gain from Basic Income, while 16% would lose compared with conventional options”. If we were moving towards a basic income, we would obviously have to put something in place to ensure those 16% did not lose out in real terms. The bottom line is, however, that the research showed that 70% of the poorest 40% of the population would be beneficiaries, or seven out of every ten. How then do we come to a conclusion that the distribution effect of the proposal does not benefit many low income households? Again, it is problematic. It is more than problematic; it is erroneous.
There are two other errors to which I want to point and they are both errors of logic. The commission's report contains major errors of logic. It states, for example, "A review of the evidence on universal basic income notes that while smaller basic income trials delivered some positive outcomes with respect to wellbeing, they did not noticeably affect employment or incentives to work." This failure of basic income to increase participation in the paid labour force is assumed, implicitly, in the report to be a disadvantage of basic income. However, the report fails to acknowledge that both basic income and the current tax and welfare system deliver the same participation in the paid labour force so there is no impact, positive or negative, in there. The report also fails to look at or recognise that only basic income also delivers improved well-being when compared with the current model. Instead, the report states that, "In the absence of a pilot programme that is large enough in sample size and over a long enough period of time, the fuller, long-term merits of universal basic income will remain unclear." The report is basically saying we cannot assess basic income without a perfect experiment. Our first response would be to ask how many significant policy initiatives in Ireland have followed a perfect experiment? For example, when there was a decision to reduce corporate tax rates to 10%, was it piloted? Was there some kind of perfect experiment? Of course not. It almost never happens but it seems to be set here, implicitly, as a requirement.
It is Social Justice Ireland’s contention that these errors of fact and logic contributed to the dismissal of basic income in the report. The Report of the Commission on Taxation and Welfare 2022 came to its conclusion based on three serious factual errors and a failure to draw logical conclusion on pilots, that is, that universal basic income, UBI, appears to be superior, along with a declaration that we cannot assess UBI until a perfect experiment is conducted, which is untrue, and a recommendation based on no evidence that we should not do a perfect experiment. Consequently, Social Justice Ireland rejects the commission’s recommendation not to support the development of a universal basic income in Ireland. That conclusion should be rejected because the evidence and the logic on which it is based is erroneous, misleading and inappropriate. We call on the commission, on the Committee on Budgetary Oversight and on the parent Department, the Department of Finance, to ensure these grave errors are corrected.
