JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 4 Feb 2004

Combat Poverty Agency: Presentation.

Chairman

The brief of the Combat Poverty Agency, the body with a remit to advise on ways to prevent and eliminate poverty and social exclusion, touches on the activities of many Departments and State agencies. Consequently, it involves many Oireachtas committees. The agency has quite rightfully identified this committee as having a role to play in influencing the policies of the Department of Finance and the Department of the Taoiseach.

The committee has already marked its interest in the areas of the level and nature of poverty and social exclusion. It has decided to investigate the need to address income equality in this State. In the context of a report on bank charges and interest rates, the committee has met with credit union representatives and the money advice and budgeting service and will consider how their views on the approach to low-cost credit and debt management can help to bring about positive change.

The delegation includes Mr. Jim Walsh, the agency's head of research and policy, Mr. Jonathan Healy, policy and research analyst and Ms Fidelma Joyce, policy liaison officer. I advise the delegation that while the comments of members are protected by parliamentary privilege, those of visitors are not.

Mr. Jim Walsh

Thank you. I apologise on behalf of our director, Helen Johnston, who is currently out of the country. In the normal course of events she would be in attendance.

We appreciate the opportunity to meet with the committee. The agency has put an increased emphasis on engaging with Members of the Oireachtas through meeting with political parties and committees. This is the first opportunity we have had to discuss poverty issues with this committee. While the interplay between finance policy and poverty is important, it has been largely neglected. We see this as an opportunity to enhance this debate. I assure the committee that this will not be a PR presentation. We will try to identify a number of issues for discussion and we are keen to get the committee's reaction to the views we have.

The Combat Poverty Agency is the statutory body on poverty in Ireland. We have research, project development, information and policy functions. We are focusing on our policy function today. We have a remit to advise the Government on all aspects of economic and social policy pertaining to poverty. The starting point of our presentation is the national anti-poverty strategy and its first cousin, the national action plan on poverty. A distinctive feature of the strategy is that it identifies poverty as a crosscutting concern for Government policy and tries to make poverty a policy priority across all areas, including finance and public service policies. The focus of our presentation will be on budget 2004 and this is particularly relevant in light of the Finance Bill 2004 that has been published today. We will also comment on tax equity issues, new financial instruments and social expenditure.

The distributive and poverty impact of the budget is our key touchstone. The starting point is that Government carries out a poverty impact assessment in advance of all major new policy developments, such as the budget. This will ensure a strategic focus to policy making. The key issue is the elimination of poverty and the Government has set specific targets in this regard. To the credit of the Department of Finance, it undertakes a poverty impact assessment and publishes it as part of budget documentation.

This presentation attempts to complement this analysis by referring to additional perspectives that will bring an insight into the distributive and poverty impact of the budget. To facilitate this, we use the SWITCH — social welfare and tax — model. This allows us to present the impact of Government policy in terms of tax and welfare changes in a realistic manner. In doing this, we compare the budget with a neutral budget, namely a budget that is indexed in line with wages that would effectively keep people on a par in terms of their income. In this, we focus on the tax and welfare measures of the budget. We do not allow for the effect of tax reliefs. Under this model, the population is divided into five equal quintiles, from the poorest to the richest. We can also then measure the impact on income poverty. It should be noted that we will not look at the indirect effects that are important in terms of work incentives and disincentives.

From the material I have distributed to members, we can see that the main impact of the budget was on the lower income categories. The bottom 20% of the population received a gain of around 3.5% in disposable income compared to a neutral budget. However, this tapers off quite dramatically; for the second quintile the increase is 2% and it is less than 1% for the third quintile. The top quintile, the richest 20% of the population, will have experienced a small loss in their disposable income. On face value, we consider this to be quite a positive outcome. It is clearly a redistributive budget where the focus of policy was on the lower income categories. This is particularly clear when we compare budget 2004 with budget 2003.

Budget 2003 had a minimal impact for both the poorest and better-off groups. Budget 2004 has a qualitatively different policy outcome and is much more redistributive in focus. This reflects the fact that more resources were available for allocation and there was a stronger welfare focus in the budget.

In the third overhead on that page, I looked at the distributive impact of budget 2004 compared with earlier budgets of previous Governments between 1998 and 2002, which might be described as a golden era in terms of the availability of resources.

Senator O’ Toole

Are they annual averages?

Mr. Walsh

That is correct.

We can see a more dramatic contrast here where in the previous five budgets, on an annualised basis, the gains ranged from less than 0.5% for the bottom 20% of the population and targeting the one-third of the population who had annualised gains of more than 2%. Budget 2004 marks a significant policy departure on 2003, because there was more money to spend, but also from previous budgets which had more money to spend. The focus has now dramatically shifted to lower income categories.

The next page deals with the poverty impact of the budget. This focuses on the segment of the population which is in relative income poverty. This is usually measured as households below 60% of the median or 50% of the mean, who experience relative income poverty. Again we see a modest but significant poverty reduction effect of budget 2004, in which there is a fall of up to 1.5% in the level of income poverty. At the 60% median, which is the typical measure, poverty will fall by 0.6% from 19.4% to 18.8%. That might not be regarded as significant but it is a positive outcome.

While there is no explicit relative income poverty target in the national anti-poverty strategy, this reduction is to be welcomed for a number of reasons. It brings Ireland more in line with the EU norm, where traditionally we have had a higher level of relative income poverty than other countries, but it will also have a positive impact on consistent poverty, which is how the Government's poverty target is framed. Consistent poverty is a combination of being income poor and deprived of a number of basic necessities. Therefore, the income element will clearly benefit in this case.

That is our analysis of the budget. I would now like to look at the key policy influences and drivers in the budgetary outcome. The first issue to note is the total package of resources available. In this, the contrast is interesting. In effect, budget 2004 has an extra €250 million approximately to allocate ahead of simply indexing the budget in line with wages. This is the surplus money the Minister had to play around with. Budget 2003 had virtually no surplus money but in the earlier periods, the amounts of resources available were greater, averaging approximately €700 million. We have had fewer resources available in recent budgets but the balance between tax and welfare measures has shifted dramatically and budget 2004 clearly prioritised welfare improvements over tax.

The tax measures in this year's and last year's budgets were effectively just in line with wage indexation, our neutral benchmark, whereas the welfare component was up to €250 in advance of that. Therefore, the surplus was being exclusively devoted to the welfare side. In the years in which we had more resources, the opposite was the case and approximately 90% of additional resources went to tax reductions. The pattern is clear and may be summarised as follows: as we have fewer resources available, the focus on poverty reduction and welfare measures has been enhanced.

One might say it is a missed opportunity not to have had as strong a welfare focus then as now when the package of resources was much greater. If we had, the impact on poverty reduction would have been much greater than the modest reduction in the 2004 budget.

The child benefit element of the budget, which has been significant in recent years, in some cases amounting to up to €30 million, is a progressive measure. While child benefit gives the same cash amount to rich and poor, in proportional terms, it benefits lower income groups more than the better off and is effectively a redistributive measure.

In regard to the specifics of budget 2004 and how the welfare improvement was delivered upon, a flat welfare increase of €10 or 8% was provided, which is well ahead of forecast inflation and wage growth — approximately double. I want to highlight the fact that because this was a flat rate increase, those on the lowest rate benefited most. The lowest rate of social welfare up to now was €124, the recipients of which have benefited most. However, the pensioner categories have not benefited by the same percentage amount. This is in line with our argument that all welfare categories should be lifted by the same amount and, in doing so, proportionately benefit the lower categories.

Last year's budget gave €10 to pensioners and €6 to all other groups. The Minister for Social and Family Affairs has done the right thing by bringing everyone up by the same amount. This increase is broadly in line with the NAPS target to have a minimum social welfare rate of €150 in 2002 values by 2007. The increase was €10 as opposed to €6. This is an inflation-adjusted figure and the fact that this year's inflation is likely to be lower will help to achieve this target more effectively than would otherwise have been the case. On the tax side, the changes are also targeted at the lower paid, which is the best option from a redistributive point of view.

There are some downsides to the budget on which I now want to focus, as illustrated on the first overhead on the last page. The main casualty of the budget is child benefit because it is now being squeezed by the stronger focus on social welfare measures and by the significant resources that went into increasing tax credits. As a result, the allocation for child benefit has been squeezed significantly and the increase this year is just €6, which is half of what was required to meet the Government policy target of €149 by the end of next year.

Deputy P. McGrath

Was that promised?

Mr. Walsh

Yes. While there is a good story, the loser is child benefit, which we have strongly supported in terms of tackling child poverty and supporting households with the costs of children. The impact on poor families has been worsened by the continued freeze on child-dependant allowances, which are the top-ups for people on social welfare who have children. These have been frozen since 1994 and while we felt that was the correct policy approach in terms of incentives, it was only realistic if child benefit was being increased by a much more substantial amount, which is no longer the case. The situation of poorer families will have been disimproved by this budget.

There were no improvements in the percentage of payments for adult dependants. At present, for adult dependants or qualified adults, it is approximately 60% of the adult rate. Research carried out on behalf of a Government review group stated that this figure should be increased to70%. We feel there is an inequity between households with two adults compared to those with just one.

I should also note the impact of the expenditure cutbacks announced in the Book of Estimates. They have been factored into our equation but they are significant cutbacks in terms of SWA payments and will be of concern, particularly where they impact on new claimants.

I want to raise two more issues to do with tax equity and new financial instruments. The first point, on tax and social equity, is the importance of the need to broaden the tax base for two reasons: first, to provide adequate resources for welfare improvements and other social improvements; and, second, to ensure that the tax system works to promote social equity. We have identified some concerns in this regard in some of the analyses we have done of the budgets in recent years and in our budget submissions.

Three years ago the Government effectively lost €7 billion through various discretionary tax expenditures and at the time that was a quarter of the total tax take. This was a big leak in the tax base and a huge loss of money. As well as undermining the progressive nature of the tax system in the sense that many of these expenditures are largely confined to better off groups, they are also of questionable economic and social benefit. There is a need for a rigorous analysis of the social and economic benefit of many of these tax reliefs. Their benefit is not apparent. That is not simply our view. It is also the view of others such as the Comptroller and Auditor General.

In recent years the Government has had a policy of progressive closure of discretionary tax reliefs such as property reliefs, either reducing them or simply bringing them down to the lower rate. Unfortunately this policy has been reversed in budget 2004 where a number of reliefs have been continued and we think that is not a good policy. We are particularly concerned about the evidence from Revenue that the highest earners are effectively reducing their tax rate to less than 20% and in some cases paying no tax at all by availing of these discretionary reliefs. From an equity point of view, this is sending out the wrong message entirely. We have suggested that there should be a minimum tax rate for higher earners, possibly 15% or even 20%, below which they could not reduce their effective tax rate, as well as progressive closure of the reliefs. This would generate considerable resources because high earners pay a great deal of tax and we could use that to pay for many important social measures.

In recent years we have seen the emergence of a range of new financial instruments for delivering policy outcomes such as the savings incentive scheme, the proposed carbon tax and the waste collection charges. These are about achieving particular policy goals such as encouraging savings and reducing pollution and climate change which are valuable outcomes. While these involve significant levels of resources, for instance, the cost of the savings incentive scheme is about €500 million per annum, we feel that more work should be done to protect the position of low-income households. For example, the way the savings incentive scheme is structured means that it will be of benefit primarily to better-off categories. In once sense one might say, "So what? Poor people cannot save anyway," but this misses a key point and the Chairman mentioned this earlier in terms of access to credit of people on low income. A big problem for people in debt is that they do not have any access to a savings route or credit route. We say — this has been done in the UK — that one could have a targeted incentive savings scheme for low-income households to address a fundamental structural problem, which is their inability to get on the savings trail and therefore access credit.

The carbon tax is another issue which highlights a structural problem, which is the problem of fuel poverty. My colleague, Mr. Johnathan Healy, can talk about that in greater detail. This is the problem where poor households are paying more for less heat output because they have inefficient heating systems and use costly fuels. The carbon tax will impact more on low income households than on any other category. Therefore it is essential that the revenue from carbon tax is redistributed into compensatory measures and, more significantly, addressing the fundamental problem of badly heated homes of low income households.

We also have done some work on highlighting the inequities of waste charges. While we are in favour of policy goals such as the polluter pays and savings incentives, more focus should be given to the poverty impact and the low income dimension of this. This highlights the need for more joined-up government, that is, where one side of Government such as the Department of Finance introduces a policy instrument in terms of a financial measure, the social element of that policy should also be focused on. While I will end there, my colleague has more to contribute on social expenditure.

Ms Fidelma Joyce

We also thought that this would be an opportunity to raise some social expenditure issues. My input is based on a study completed for us by Virpi Timonen entitled, Irish Social Expenditure in a Comparative International Context, which was published in the autumn of last year. The context for the study was the rapid economic growth which has also impacted on employment rates in changed labour market trends.

With the economic growth, the income of people dependent on social welfare has increased. However, the gap between social welfare incomes and average incomes has also increased. Between 1994 and 2001, that gap has risen from 15.6% to 21.9%, based on the poverty trend in the ESRI data from 2001. Taking into account what Jim Walsh stated earlier about the redistributive impact of the present budget, nevertheless that is a significant rise in relative income poverty, despite the decreases in consistent poverty.

The key findings of this study show that while social expenditure has grown, it is actually a relatively low proportion of GDP. The envelope has got bigger but the actual proportion of the spend on social expenditure has not increased in line with the wider envelope of GDP. According to the wider 1997 figures quoted in the report, Ireland was the fourth lowest in terms of net social expenditure in the OECD. The report uses the OECD figures and makes comparisons across OECD countries. In terms of emphasis in the social expenditure, Ireland has the second highest spend in the EU on sickness, health care and disability, with family, children and pensions also being priorities within the envelope of social expenditure.

There have been some increases in welfare but the reality is that earnings also rose and the proportion of disposable income fell. Even though there was some increase in the level of welfare payments, wages have grown at a much greater rate and that has contributed to this rising gap and income inequality, and this comes out in the study. One of the concluding findings of the study is that high income inequality has emerged in Ireland, higher social expenditure is needed to redistribute income and the benefit/tax system has to address the redistributions. The policy implications are that the social support systems have to work harder to reduce poverty and inequality. That means, as I stated earlier, more extensive social expenditure is required.

The most recent OECD data on poverty and social expenditure show that countries that spend most of the money on social policies other than pensions for older people also have the lowest poverty rates. To reduce poverty through the tax and social welfare systems, therefore, we must take measures to reduce the income gap, and moving towards the €150 target is a way of doing that. At the same time if we look at the redistributive nature of this budget, however, at 1% per budget it will take us quite a while to reduce the gap between those on the average income and those on welfare.

There are many active labour market initiatives but the key issue is moving people from unemployment into highly skilled jobs. It is related to the idea of joined-up government, ensuring measures taken by one Department do not conflict with those taken by another and do not create poverty traps. There is a need to review the decisions taken by Departments and ensure they do not affect people in poverty. There is a need for the provision of equitable access to public services. Evidence shows that people on low incomes are most dependent on accessing public services.

Our report was commissioned to start a debate on universal measures versus targeted measures in social provision. The universal system has the potential to create greater equity. A targeted system can create poverty traps and reduce solidarity across society. Some people receive benefits but others get the hidden benefits of tax relief that might otherwise have benefited other sections of the community.

The report also includes an examination of how tax expenditure can eliminate regressive measures. Tax expenditure and relief benefits those groups on higher incomes disproportionately. We want to see the greatest investment in public services where the demand is greatest — among people on low incomes — and ensure that those services are accessible on an equitable basis.

In considering financial policy, one of the key outcomes of the report is the need for increased social expenditure and how to pay for it. We have come up with some of the issues for tax initiatives and the tax relief system. Even though Ireland has a young population without a huge pension crisis at the moment and high employment rates, the main issue is the income gap between those on welfare and those on other incomes and the need to use social expenditure as a mechanism to reduce that gap.

Chairman

Child benefit was mentioned as a progressive measure, although similar amounts go to rich and poor. Should it be means tested or taxed?

Mr. Walsh

We support the Government's commitment to raise it to €149 and it should be done without means testing or taxing it. If there are sufficient resources, we should not do either because it is a progressive measure targeted at children and there is an important principle of social solidarity at stake that everyone buys into. If we begin to pick that apart, the universal support for child benefit could be undermined. There are other ways of targeting resources.

Chairman

New financial instruments and waste charges were mentioned. I find it unusual that people in employment who are paying tax can get a tax rebate on their waste charges and the next door neighbour who is on social welfare gets no waiver, especially in counties where the service is entirely in private hands and there is no waiver mechanism. What is the delegation's view on that?

Mr. Walsh

We carried out a study into this matter last year. It was brought to our attention by the Money Advice and Budgeting Service. It shows the links between debt, waste charges and other problems. In areas where the service was privatised, there was no relief, so we have suggested a universal waiver system for low income families without discrimination.

Chairman

It would be like a secondary benefit in a social welfare payment.

Mr. Walsh

Yes, but our preference is not to go down the social welfare route but to deliver it at source rather than create another benefit.

Chairman

Years ago there was a tax-free allowance for dependent children that has gone out of fashion in recent years. It was a recognition through the taxation system that it costs more to run a household of two or three children than a household with no children. Should we go back to that or are there better ways to deal with that issue? In social welfare there is a child dependant allowance but the taxation system does nothing for the low income family with children.

Mr. Walsh

The tax allowance was integrated with the old child allowance to create the new child benefit. That emphasises how child benefit delivers a tax relief for families. The issue of those on lower incomes, however, is interesting. We want to look at a second tier of benefits similar to that in Britain, where there is a working family tax credit or a child tax credit targeted at the lower income category.

Chairman

Could it be done through FIS?

Mr. Walsh

Effectively, the British have delivered it through the tax side rather than the welfare side and there are merits to that. We want to investigate it further.

Chairman

Some low income families might not be in the tax net due to their allowances.

Mr. Walsh

It would be refundable.

Chairman

It would receive tax relief at source, like the mortgage interest relief.

Mr. Walsh

Yes, the person would get the benefit regardless of paying tax.

Deputy Ó Caoláin

I welcome the delegation to the committee. Mr. Walsh indicated this is the first such engagement with the committee and I hope it is the first of many. I appreciate the work of the Combat Poverty Agency in informing us as legislators and increasing public awareness of the level of poverty in society.

As the Deputy from Monaghan town, I welcome the agency's decentralisation to Monaghan town. I do not know how excited the delegation is.

Mr. Walsh

We are already there.

Deputy Ó Caoláin

We welcome Combat Poverty to Monaghan and hope the staff will be happy in that new location.

The delegation said that there was no improvement in the percentage of payments for adult dependants, that 60% is too low and that 70% should apply. Most often, women are the adult dependants. Where did we ever get the notion that they were less than 100% of the adult rate?

I cannot get my head around that. I know the arguments and have heard them time and again but I would like to hear the Combat Poverty Agency's view.

Dependent adults, often women, are left in a hidden tier of poverty such that for various reasons, interrelationship or whatever the case might be, they do not have fair and equal access to the resources in their family or relationship. Adult dependant allowances should be paid directly to the so-called dependee — much of that language needs to be revised. I am thinking of real cases. People might say some families are fine but are they? Has the Combat Poverty Agency had the opportunity in the limited period since the Minister for Social and Family affairs announced changes in the rent allowance to conduct an impact study on the effects of that change? The people who are suffering most in my experience are young women, often single parents. I pointed out in the House at the time what I felt would be the impact of that draconian decision and I am anxious to hear the Combat Poverty Agency's view on that.

The Combat Poverty Agency has repeatedly pointed out the lack of affordable child care. Has it noted any improvement in the area of access to affordable child care and what is its view of the current provision? As I opened up with a welcome to Monaghan perhaps it would share its view on the move to that location.

Mr. Walsh

I am from Kerry so it is quite a shift for me. We have a presence in Monaghan through the peace programme, and a large office with ADM and between 20 and 30 staff. If not decentralised, we are already regionalised. We are looking at it in terms of moving there, including the issue of staff presence. Staff have their own views on that. We are also considering the issues for the agency as an organisation.

We are somewhat concerned about whether moving to Monaghan will impact on our ability to deliver our key functions. It may not affect some areas but will affect others, for example, we have a public access library, the only one in the country to specialise in poverty material. Students and others use it. Will access to that disimprove or improve? We are office-based and it is possible to have an office wherever one wishes and deliver the work but we need to consider in more detail whether the move will affect the delivery of our functions.

The assumption behind the adult dependant allowance is that two people together live more cheaply than two people living separately. In this regard the assumption of point 6 for an adult, and point 3 for a child, has been intrinsic to the welfare system and we inherited it from the UK. The objective basis for that is skimpy and that is why the ESRI carried out some work for an Oireachtas committee which highlights that some of these assumptions are incorrect and that to deliver an equivalent living standard it should be at 70%. For children it should probably be higher too.

That is one set of issues but the second set which none of this addresses is the assumption that once the money goes into the household it is shared equitably, whether it is at 66% or 70%. We have done some work on this question. Everyone here knows that there is no perfect sharing of resources. Some people have control over others. We have found that men have more control over resources than women but that does not seem to make a great difference between the living standards of men and women. That is preliminary work and we need to do more because there are many cases where that clearly does not apply, where control of the resources entails very different living standards within households.

The question for social welfare is twofold: does the way the money is delivered into families, especially those in low income groups, influence how it is allocated? The welfare system is not neutral in the way it gives money to a household. For example, if it calls the money child benefit the evidence is that this will increase the likelihood that it is spent on children. Similarly, whether it is given to two people or one person might influence how it is spent. That is one set of issues.

The second set is how people have their own entitlements in their own rights to their payments and that is very important from the perspective of women's rights. The point here is that 66% to 70% will not address that and we must ensure that women have access to social welfare in their own right, primarily through the social benefit system, PRSI coverage, and so on. That is how that issue needs to be addressed in terms of individualisation.

Ms Joyce

The changes to the SWA in the guise of a cut in expenditure have created a policy shift in the application and we are concerned that given the review of community welfare issues which has been continuing for some time that would be the best place for dealing with these issues to work out the implications of any changes in policy. We have not completed an impact study yet but this does warrant attention and several organisations have raised the issue in terms of the impact it can have on people who may move from employment into unemployment in a dramatic way and how this affects them. We will study this.

We have not recently produced a report on affordable child care and the effect of its absence. Our main concern is that when talking about child care spaces we refer also to the quality of early education and we will produce a new document on education policy. That document will look at early childhood intervention, the importance of early childhood education and the importance of childcare places to people on low incomes. This will also at the issue in terms of access to the labour market.

Deputy Burton

I welcome the delegation from Combat Poverty. I thank the agency for the valuable research it has carried out and its contributions to debates on issues of poverty.

Why is Combat Poverty so unsuccessful, even with the current economic situation, with the representations it makes on behalf of poor people? I noted Mr. Walsh making the case of distortions in the tax system. Half an hour ago, the Minister for Finance published a Finance Bill which is like Robin Hood in reverse because it will put low income earners into the top tax bracket while there is a huge extension of property-based tax breaks. I am an admirer of, even if I do not have the energy for, social partnership structures. However, in an economy where the building industry is powering ahead, but in which it is difficult for young couples to buy a house at a reasonable price, what economic justification is there, as in today's Finance Bill, for a huge extension of property-based tax reliefs with none for people on modest incomes in the PAYE sector?

I welcome the news that this weekend the minimum wage was increased to €7 per hour. The small and medium sized employers who condemn this are wrong. It is in the interests of the country to be a high wage and high-skill economy. With that increase to €7 per hour, it means €280 per week for those on a low-paid job, bringing them into the PRSI net. Due to the failure to tackle PRSI limits in this year's Finance Bill, people who get paid the minimum wage will now be entering a trap. If they work more and get more income, they will end up in a PRSI trap. In terms of the valuable input Combat Poverty makes to debates on poverty, why does it have no impact on the Minister for Finance and the Fianna Fáil-Progessive Democrats Government?

I listened to what was said about the child dependant allowance. It is obvious that families with children who are not in work, or in low-paid employment, are suffering in this economy. Fr. Seán Healy of CORI has informed the committee that many people on long-term social welfare benefits due to illness or invalidity cannot take up work. Those people with children are permanently caught in this trap.

Congratulations to Combat Poverty for all the input it makes to the debate. However, why has it been so unsuccessful in making an impact in recent years?

Mr. Walsh

From the analyses shown, there has been a policy shift in the past two years, particularly with budget 2004. The issue is to understand why some budgets are better than others and other policies are more interventionist than others. It has been a learning lesson for Combat Poverty. Traditionally, the agency has focused on social welfare matters and working with the parent Department and the Minister. However, the agency now believes that it should also engage on the finance side with the economic ministries. The agency has met with Department of Finance officials to engage in various policy debates.

One example of the agency's success in this area was when there was discussion on what was the best way to support families with child care costs. Many people were advocating a tax relief. The agency, however, said that child benefit was the proper route to take. This solution won in the end with the Department of Finance. Combat Poverty believed it has an input in that.

The agency has highlighted the inequities of the tax breaks. In last year's analysis, the agency welcomed the closure of those reliefs. Obviously, there are other factors at play here. The agency has got better at presenting its viewpoint but there are other viewpoints and political factors involved. Progress has been made but there are other issues.

There is an anomaly between the increase in the minimum wage and the PRSI trap. This is a problem with some of the threshold systems where once one goes over the threshold, one gets hit with the full amount. That was a short-term measure that is coming to roost and needs to be addressed. Those distortions in the tax system simply create problems. While they are fine as short-term measures, in the long term they can be regressive. We need to look at having a more streamlined system in PRSI. In the past, the agency has argued the need to abolish the ceiling at the higher end and use those resources to have a more graduated system.

The time is ripe for a review of the policy of freezing child dependant allowances, as we have had ten years of that. The fact that the child benefit element has slowed down brings this more into the open. The agency would like to have the child benefit commitment to be delivered because it is the best route. This is particularly the case for older children. A two year old child on social welfare gets the same benefit as a 17 year old. The research we have done suggests that older children, excluding child care costs, cost up to 50% more to raise. The agency has argued that we need to have an age-related child dependant allowance. There are currently three rates that all depend on the welfare category one is entitled to, rather than the age of the child. That is a simple reform that could be introduced without reversing recent policy direction.

Deputy P. McGrath

I welcome the delegation from the Combat Poverty Agency and I thank it for the presentation.

Can Mr. Walsh remind us of the definition of poverty. So many items and issues of interest have been raised that we could have numerous discussions with the delegation, focusing on small items and looking at those in depth, as distinct from the broad sweep of what the delegation is doing today.

I do not want to discredit or in any way run down what Mr. Walsh has said to us, because I know what he is doing. He has tried to present us with a global picture, but many small items and their effects need to be looked at in detail. We would benefit from an interaction with the delegation on their implications. For example, the CDA, the child dependent allowance, was mentioned. Did Mr. Walsh say that the old notional figure was proposed as 0.3% of the adult payment?

Mr. Walsh

It was 0.33%.

Deputy P. McGrath

I thought that was what he said.

Mr. Walsh

That is the Government target too.

Deputy P. McGrath

The Chairman will forgive me if I am not too good at the sums, but for someone on unemployment benefit or assistance, the bottom rate is currently €134. Using the notional figure of 0.33%, that puts the CDA, the child dependent allowance, at more than €40. The reality is that the CDA is less than half of that. That is a huge difference and a huge concession in terms of not delivering to people in poverty, people at the bottom of the scale. As if that were not bad enough, we have three different CDA rates. There is one rate if one's father is unemployed, another if one's mother is a single parent, and yet another if one's mother is on disability or invalidity allowance. How can anyone, including the Combat Poverty Agency, justify saying that there can be a difference of €250 per annum in household income between two adjoining households who happen to have the father or mother as the main recipient of a social welfare payment that is different? That is not justifiable under any terms. I hope this is one of the items the delegation might talk about. I tried to raise it with the Equality Authority, the Ombudsman and repeatedly with the Minister, though I am wasting my time there. Nobody will take it on. It is ignored.

The only reason the rate will not change is that one would have to bring everyone up to the top rate. No one's allowance can be cut. Most people are on the bottom rate, so the change would cost a lot. Being realistic, that is why the rate is not going up.

The old argument which used to come from the Minister's office regarding the CDA was that it was an employment disincentive. I may have discussed this previously with the Combat Poverty Agency. The argument I refer to may have been reasonable a long time ago, but in more recent times it is not, because the back to work allowance incorporates the value of the CDA. Hence it increases the value of the back to work allowance, so it cannot be an employment disincentive. A far greater employment disincentive is the medical card issue and the strict income limit for qualification. People are seriously considering whether to go to work or not because of the medical card and the restrictions put on getting it. It becomes harder to get the medical card if one goes to work.

I note the pictographs and so on in page two of the presentation. I used to study statistics, and I suggest that the portrayal of the statistics in this instance could lead one to believe that the picture is much brighter than it really is. A very false impression can be given because of the type of pictograph used, rather than some other way of showing it. The first pictograph shows, let us say, a 3% gain for the bottom percentile. Such a gain on €100 is €3. A 3% gain on €200,000 is €6,000. It makes a world of difference.

I had better use annual payments. A social welfare recipient on €6,000 per annum who gets a 3% gain gets €200. Someone on €200,000 per annum makes a gain of €6,000, a figure equivalent to the a year's full social welfare payment. Put in those terms on a pictograph such as those used, this fact does not jump out at one. Someone might say I am talking rubbish in this regard, and I probably am, but the figures are unfortunately based on hard facts, and many years spent in office.

If one looks at what has happened in the tax code in this country, and I am sure Mr. Walsh and his colleagues are very familiar with it, for each of the past three years a single person earning €100,000 per annum gained €7,000 in reduced income tax payments. The Chairman is raising his eyebrows, but I am correct. A single person earning €100,000 improved his or her position in the tax take in the last three years by €7,000 per annum. We will not even give €7,000 to a poor creature on social welfare.

I do not want to be critical in this sense, but the pictograph does not give that kind of representation to anyone reading it. People do not realise the stark reality of what has happened. At meetings, I and no doubt my colleagues too are told of lone parents becoming such for the sake of money. We are told that it pays to be a lone parent. My response is to ask where one is going on €134 per week, with €19 for the child, giving a total of €153 per week. What would one do on such money? It is awful, and goes nowhere near addressing the real need of the two people in such a situation. That leads to further problems. I am sorry — I am preaching.

I ask the delegation to comment on the CDA, and I have indicated the aspects I would like it to look at. The delegation talked about child benefit, and won the battle, having realised that child benefit was a good way to deliver. But what happened once the battle was won? The Minister announced in year one that he would take a certain action, and certain other action in the two years following. In the second year, he did what he was supposed to do. When it came to year three, he delivered 30% of it. What happened when he came to year four? He delivered 50% extra on what he should have delivered in year three. You won the battle, but you lost the war because the Minister was able to get out from under the commitment that he had given the country. That is where the real problem is.

I would also like the agency to expand on the minimum tax rate for higher earners; I love that one. I think that Mr. Walsh suggested, when he was talking to us, that it might be approximately 15%. Perhaps we should spend a day on that some time. However, before you come in with a specific figure, I would like you to do a series of charts showing the effect of 15%. I was trying to do some rough figures there. If one takes my old friend, the single man on €100,000, I reckon that he is paying an across-the-board rate of about 28% or 29%. If we assume a minimum of 15%, he will have that amount of money that he can reinvest in something else.

However, the effective tax rate of a person on €200,000 — and there are thousands of them out there — is only about 32% across the board. You will have to set the figure somewhat higher than 15%, and perhaps you should examine the context. From our point of view as the politicians who will have to go out and bat on this one, if we went out and said that there should be a minimum across-the-board payment of 15%, can one imagine what the poor single person on €30,000 would say? As he sees it, he is paying tax at42%; yet you are saying to those rich ones that they can get away with an effective rate as low as15%. That is how they will see it. I know that it is totally different, but it will be a major selling job.

However, you should look for case profiles from the Revenue and the Department of Finance to show the world that people earning significant amounts of money are in effect paying 3%, 4% or 5% of their gross income in tax because of the various loopholes. It is only then, when we see real facts, that we will begin to realise the kinds of incentives and loopholes that are being used which, though legitimate, were created by politicians. Even with your presentation to the committee, it will be difficult to convince people even when backing it up with real facts. One will not engage the ordinary, middle-class person, who is the one that is screwed for everything.

Take the couple with a child trying to go to college who are cut off from grants at a relatively low level. They have to pay full living costs and so on. Talk to them about their disposable income. Coming back to the first point raised by my colleague from Monaghan, I would bet that, for people in my age bracket, or much younger people who have a family coming on who will be going to college, related costs will be a huge consideration when considering decentralisation and moving into the country. I know someone in another Department, and I said to him that it would be great to see him moving into a rural area. He said that I must be joking because he had two children at college and could not afford to move them into the country and start paying accommodation costs for them. I am sure that that is a consideration. Perhaps we might return to those points.

Deputy C. Lenihan

Depending on where one positions oneself on the political spectrum, one has different views on the presentation given. I welcome it and the frank acknowledgement that the 2004 budget was redistributive. That was the intention, politically and otherwise, and we on the Fianna Fáil backbenches are very happy that it was achieved. That was our priority before the budget. We have supported it consistently for several years.

Deputy P. McGrath

I heard the Deputy last year giving out about it.

Deputy C. Lenihan

The Deputy is mistaken; I did not. I am a fan of the current Minister.

I welcome the thrust of what Combat Poverty is saying. There is a time and place to reinvest in our social policies and in investment in people. The Virpi Timonen report is also very timely, showing up the clear gap that exists between us and continental European countries in social spending. I am slightly confused; I know that it was not for political reasons, but as I understand it the measure that most of us rely on is that of consistent poverty, and that has fallen continuously over the last six or seven years, notwithstanding the very low comparative level of social spending. I throw that out not to make a point or to say that you might be wrong but as a challenge to you.

I know that the Timonen report refers to it regarding the 1985 OECD statement that to over-invest in social spending has the opposite effect, suppressing sustainable growth in the medium to long term. I am not convinced that that is so. As I said from the outset, I am very much a supporter of increased social spending, particularly in the context referred to by Deputy Burton of a country that, for competitive, economic reasons, is moving up the value chain. It is probably more important in that sense. However, it is also important to acknowledge that consistent poverty has fallen, even though, as Deputy Burton tried mischievously to suggest, many of your recommendations were ignored. The emphasis of the Government over the last few years has been to take the pressure off the tax system, moving us from a very high-tax economy in the personal sense to being a very low-tax country relative to the rest of Europe.

I wonder are the agency's views regarding the well-acknowledged economic phenomenon whereby, when countries go through intensive periods of economic growth, the issue of income disparity that you have raised in your document becomes more obvious. It is a well-defined feature of economies going through high growth, as we have just done. However, the general trend is that, over the medium to long term, that evens out. That is what the economists tell us anyway.

I welcome your idea that some element of a minimum floor should be enforced regarding how much tax high earners pay; that is only right. It is important to point out, on the relief that the Minister signalled in the most recent budget, that he is moving against aggressive tax planners who produce those results as if by magic. I am more keen to hear your attitude to basic income and how that should be structured. I am also keen to hear what specific measures you envisage regarding making the savings incentive scheme, or the next version thereof, more compatible with those on low incomes so that they can more fully participate in the whole incentive scheme, which is ultimately to encourage a culture of saving and, at a micro and macro level, reinvestment and re-capitalisation.

I would also welcome your view on universal benefits. I made that argument on third level fees. If one starts on means testing, one ends up with constant administrative reassessment of people as their incomes change. I do not know if you have any research findings on this or if any of the members have noticed this.

One thing I find rather odd is that some of the local authorities are labelling the bins for the bin charges. This is a rather bad way to approach it because it effectively stigmatises or highlights somebody on a lesser income in terms of a waiver. Some of them actually colour code people, which is appalling, and it would be welcome, in talking about poverty, for us to make clear our position on that. My own local authority in south Dublin has different colour codes, which is quite appalling.

Chairman

We have heard the comments of the committee, and I ask Mr. Walsh for a final conclusion.

Mr. Walsh

We have heard lots of interesting ideas and suggestions——

Chairman

I do not expect you to address every issue, Mr. Walsh, because part of the idea was to exchange comments as well as——

Mr. Walsh

Definitely. On the point about percentage versus cash, I showed the percentage figure but cash would give a very different figure. We often look at the cash figure as well. It is useful to do so because in cash terms the story is quite different. That was a very good point.

On the poverty definition measurement trends, there is a definition of poverty as inability to afford a standard of living that is seen as the norm. It is a relative definition. Official measurement by the Government is of consistent poverty in terms of incomes and access to basic necessities, and that has very much fallen. It is down to around 5% or 6% now and the Government target is 2%. We have had that success but relative income poverty has stayed stubbornly high. In fact, it has in one sense increased, and that is very much linked to the cycle of growth and inequality.

This will not re-balance without positive measures. That is what we need to think about now. We have to make the tax and welfare system work harder to ensure a re-balancing. It has to be done pro-actively. It will not happen unless positive steps are taken. We have put together a good few ideas on the SSIAs, in conjunction with the MABS. It was effectively almost a joint proposal which we made as to how to have a targeted scheme for low income groups. It was quite different in terms of the amounts of money people would have to save and the period for which they would have to save. We were talking about a six-month or yearly cycle. The top up was a bit higher as well, at almost 100%.

Some very interesting work has been done in the UK in this regard as well, where they have a very targeted scheme. The value of that is not only in helping low income groups but in then addressing root problems in terms of money advice and so on. We have taken copious notes. We would love to come back to the carbon tax issue, probably one of the big issues in the years ahead. There has been a consultation on that and we have an expert on the issue of fuel, poverty and carbon tax. We are actually in favour of carbon tax but the revenue must be used in a specific way, and we have some very good ideas on that. It could be a very positive measure, and if we got the opportunity we would love to meet the committee again when it comes to consider that issue.

Chairman

At this stage I will conclude the meeting. Regarding carbon tax, a number of committees in the Houses have had a preliminary discussion on it and it is an issue that will arise during the course of 2004. I am sure this committee, as well the Joint Committee on Social and Family Affairs and others will discuss it again during the course of the year. It is looming large on the horizon. I thank our visitors for their attendance. We found the meeting beneficial and informative and I hope they found some benefit in hearing the views of the committee. They might be views that one would not always hear at other committees of the Houses. Every committee has its own perspective.

The joint committee adjourned at 5.05 p.m. sine die.