JOINT COMMITTEE ON SOCIAL AND FAMILY AFFAIRS debate -
Tuesday, 2 Nov 2004

Combat Poverty Agency: Presentation.

Chairman

I am pleased to welcome from the Combat Poverty Agency Mr. Brian Duncan, chairperson; Ms Helen Johnston, director; and Mr. Jim Walsh, head of research and policy, who are here to make a pre-budget presentation. Members are reminded of the parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him or her identifiable. Those who wish to make a declaration on any matter being discussed may do so now or at the beginning of their contribution. They are also reminded that if there is a possibility of a conflict of interest, they should make a declaration of interest, either now or at the start of their contribution.

I draw witnesses' attention to the fact that while members of the joint committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. While it is generally accepted that witnesses have qualified privilege, the committee cannot guarantee any level of privilege to witnesses appearing before it. However, this should not create any difficulty as Mr. Duncan, Ms Johnston and Mr. Walsh have often been here and know the format. I look forward to their presentation, after which members will pose questions.

Mr. Brian Duncan

Notwithstanding what the Chairman has said, I hope to have a robust debate as we are dealing with important issues. We want to encourage more debate on the issues of poverty and social exclusion. As members know, this is not the first time we have been here, although this is the first time I have been here with this delegation.

The Combat Poverty Agency is a research and advisory body to the Government, in which role we are tasked with providing a pre-budget submission. Today we want to present that submission, hear what members have to say and deal with any questions and queries they may have. I am not sure about the Chairman, but I believe the best chairpersons are those who delegate. On that basis I will hand over to Ms Johnston and Mr. Walsh to do all the work. If members have any easy questions, I may answer them.

Chairman

I am open to learning.

Ms Helen Johnston

I will provide some of the context for our submission, following which Mr. Walsh, our head of research and policy, will outline the detailed proposals in our pre-budget submission. The key issue we are trying to address is the increase in the level of relative income poverty in recent years. There has been considerable debate on the merits of its measurement. We argue that it is a real measurement; that the level is increasing and that we need to do something about it. As members will be aware, the measurement used in the Government's national anti-poverty strategy is consistent poverty, a measure of income and deprivation. We have seen a welcome decline in this measurement, from 15% to 5%. The Government has made a commitment which we very much support to eliminate it completely.

As we need to understand what is being measured and what is happening, it is also worth looking at other measurements, one of which is the level of relative income poverty, below 60% of median income. This measurement is used across Europe and useful for comparative purposes. It also has value over time. That is why we believe using it has merit. It measures the proportion of the population below a particular level of income, 60% of median income. As the proportion has grown from 16% to 22%, the trend is in the opposite direction to the other measurement. We need to ask why this is the case.

While incomes among the population have generally increased, some have not experienced such increases, mainly those on social welfare or in relatively low-paid jobs. We believe they are being left behind and not participating in society in the same way as the rest of the population. The trends over time show the people living in consistent poverty are living in relative income poverty for a period of time. Therefore, there is persistence attaching to it.

We have one of the highest levels of relative income poverty in Europe. Members may be aware that the ESRI has undertaken research to identify why this is the case. It has investigated whether it could be due to our demography, considering the numbers of young and old people in the population. However, that is not the cause. It has also considered our employment and earnings structures and concluded that while some of these factors may contribute to some extent, the main reason for our high level of relative income poverty is the structure of our tax and welfare system, particularly the level of social welfare payments. On this basis we have proposed in our pre-budget submission raising social welfare rates to a particular level to eventually meet Government targets.

As our proposals have been costed, we believe they are realistic. Implementing them would cost €1.2 billion, €280 million more than provided in last year's budget. As we have been told there are more resources available this year, we believe this is an affordable budget package. Some 54% of what we are looking for would go on welfare payments, 20% on child benefit and 26% on tax reductions.

In our pre-budget submission we consider the impact on those with low incomes of using the simulation model, SWITCH, devised by the ESRI. In our proposed budget each adult would receive an average increase of €3.40, with those on the lowest incomes getting between €5 and €11 per week. These measures would reduce the level of relative income poverty by 1.5%. While this may not seem much, given that the trend has been continually upward in recent years, starting on a downward trend would be valuable and of long-term benefit to those on low incomes.

Our proposals are very much in line with existing Government policy commitments contained in the national anti-poverty strategy as they relate to child income support and social welfare rates. I now ask Mr. Walsh to outline the details of our proposals.

Mr. Jim Walsh

I will back up some of the points Ms Johnston made about the policy context for our submission. Relative income poverty measures the percentage of the population below 60% of median income. The level of relative income poverty in Ireland increased from 16% in 1994 to 22% in 2001. There is a discrepancy between consistent poverty, the level of which is reducing, and relative income poverty, the level of which is increasing. At some stage the level of consistent poverty will start to rise again. Both are relative definitions and consideration has already been given to re-evaluating the components of the consistent poverty measure. It is suggested that it might now be increasing and that we cannot ignore the level of relative income poverty.

The duration in respect of relative income poverty has increased. Three quarters of those below the threshold have been below it for a number of years. This is a source of concern. Those on low incomes for a longer period of time are of greater concern than those on such incomes for a short period. Ireland's performance is the worst in the European Union in which we have the highest level of relative income poverty. In a context where tackling poverty is increasingly on the European agenda — there is a commitment at European level to make a decisive impact on poverty by 2010 — we have considerable work to do to bring Ireland into line with European norms.

Driving the challenge presented by relative income poverty has been the deteriorating position of households on welfare, the key component behind rising levels of relative income poverty. The poverty risk for welfare recipients increased from approximately 5% to 20% in 1994. All welfare categories — recipients of old age pension, unemployment benefit and assistance, lone parent's payments and widow's pension — now have a poverty risk rating of between 40% and 50%. One in every two households which depend on a social welfare payment is likely to be income poor. The relative position of those on welfare has fallen behind the rest of society. In absolute terms, they have improved their position but, in relative terms, they have fallen behind.

Not alone do we know what the problem is but we also know what the solution is. The recent ESRI study of Irish income poverty rates and why they were so high in the European context looked at all the explanations and concluded that the solution was wider social welfare coverage and higher welfare payments. If we want to be the same as the high performing countries such as Denmark and Holland, we need to increase welfare payments to lift the position of those receiving them.

The other category is the working poor. Employee households now account for 17% of all poor households. This reflects the fact that more people are working and are, therefore, vulnerable to being categorised as working poor. The Government has made a commitment to end child poverty but one third of all poor children are living in working households. This raises the question of how best to target these categories. The issue of child benefit is central to this, an issue to which we will return.

Our budgetary focus is in keeping with Government policy of the last two years. We are swimming with the tide, not against it. We want to strengthen the Government tide and make a bigger impact on poverty by putting more resources into the pro-welfare approach of the last few years. We, therefore, suggest an increase in tax and welfare expenditure to €1.2 billion. This would mean an extra €300 million over the figure for 2004. Given the improvement in the Exchequer finances, this is an affordable amount. Some may argue that it is too modest. While that may be the case, it is important that we maintain the pro-welfare focus as opposed to tax cuts. There is a concern that the availability of greater Exchequer resources might lead to tax cuts. We say the focus should be maintained on the welfare side where more resources should be provided.

A number of outstanding welfare targets should be met. Minimum welfare payment and child benefit targets must be met. We see the need to separate the funding of child benefit from the broader social welfare allocation. Child benefit has not been increased to the extent the Government may have wished, partly because the Department of Social and Family Affairs has had to make a choice between increasing child benefit and increasing social welfare rates. It is an unfair choice. Child benefit should be paid from the tax allocation, not from the welfare allocation. It is a universal payment which has a tax component in terms of the old tax free allowance for children. We need to increase revenue by broadening the tax base while avoiding indirect taxes and user charges.

Our priorities fall into four categories, one of which is concerned with welfare payments and supports. We should increase the personal rate by a minimum of €12 per week. The Government has made a commitment to reach a figure of €150, in 2002 values, by 2007. We are now at the mid-point of that five year programme. If the €150 target was adjusted in line with inflation which some would say is a minimum, the current figure would be €171 by 2007. Therefore, there is a deficit between €171 and the current rate of €135. This deficit of €36 translates to €12 per year over three years. Others have argued that the rate should be higher but we see this as the minimum amount required. The increase of €12 compares with last year's increase of €10.

The qualified adult rate should be increased by €9 per week. The amount paid for couples is an additional 66% over the personal rate. This is not enough to guarantee the living standards of couples. We want to bring the adult equivalent amount from 66% to 70%. To do this we suggest a flat rate increase of €9 in the qualified adult rate. We also suggest reform of means tests and income disregards.

We suggest a novel and not very expensive idea of providing a savings incentive as part of the MABS for indebted households. The issue of savings and savings incentives is current since the introduction of the special savings incentive scheme. However, the scheme misses the priority group of those on low incomes. We suggest, as part of the MABS debt recovery service to those who are indebted, a euro for euro saving incentive scheme to encourage them to save.

Our second priority is child income support. Increasing child benefit has been a Government priority in recent years. This is the only policy option which the Government has identified. Child benefit meets many needs. It meets child care and poverty needs and gives an independent income to the home. We agree with this approach. However, the Government has fallen behind in its commitment to increase child benefit to €150. It made a commitment that its target would be reached in 2005. Delivery of this commitment requires an increase of €17.60 per month, a 13% increase. This is crucial to keep the current consensus in favour of child benefit.

We make two other suggestions. We have argued the need to age relate child dependant allowances. A review is being carried out of the means-tested tier by the National Economic and Social Council and we believe nothing will happen until that report is completed. We make two suggestions. One is to pay the clothing and footwear allowance to all means-tested CDA recipients. The second is to expand the provision of school breakfasts and hot lunches. This would have education, income and health outcomes.

Our third priority is welfare to work measures. We want to increase the threshold for family income supplement by €35 per week. This would be in line with basic welfare increases. The main tax measure should be to increase the PAYE tax credit by €240 per annum, the increase delivered last year. This is the only tax increase we recommend. We also recommend that the medical card threshold for children be increased by €14 per week. This would increase coverage among low income working households.

Our fourth set of recommendations are intended as a long-term measure to increase opportunities for people from poor backgrounds. Early childhood education and care can have two outcomes. They can increase the opportunities for parents, particularly mothers, to return to the workforce and give children from poor backgrounds a fairer start in school by providing access to early years education and care. We make a number of suggestions in this area which are derived from the OECD report on early childhood education and care. This is a key missing element in our education and care system.

We have costed these proposals in detail. The total package amounts to €1,200 million. We are allowing an additional allocation of €100 million for social expenditure purposes. Our pre-budget submission has a strong welfare focus. More than 60% of the budget should go on welfare payments. Child benefit should take €239 million while 25% should go to the tax side. As regards the actual amounts, whether the Government spends less or more, the key element is that this proportionality is maintained in the system as a result of the budget.

We use the SWITCH model to illustrate the positive impact this proposed budget would have in reaching low-income households and reducing the level of relative income poverty. We use a tax welfare model to simulate how households would be affected. This takes account of the different types of household and the various combinations between taxpayers and those in receipt of social welfare payments and child benefit. At budget time people often come up with hypothetical households comprising two adults and two children which are extremely unrepresentative of the total population. Using a model gives us a far better way to understand what the outcomes actually are.

In presenting this model we need to compare our budget proposals with an alternative, a wage indexed budget where one would increase welfare payments, tax bands and reliefs by 4.2%, the expected level of wage growth for the year ahead. This is often seen as a neutral budget. It is interesting to note that the SWITCH estimates of the cost are very similar to the official figures. In fact, they come out exactly the same at €1.2 billion. This helps to validate our results. Our proposals would cost €366 million more than a neutral budget but most of this would go on welfare payments. We would claw back something in the order of €143 million from those who pay tax.

This table presents the distributive impacts — those who would gain. We break the population down into ten deciles. The bottom three would gain by 4%. Their incomes would increase by 4% compared to a neutral budget. The middle income groups would gain around 1% while the higher income groups would lose slightly — it would be a very modest loss. In cash terms, the gain per week would be between €6 and €11. We believe, therefore, this would be a progressive budget. The budget proposals of all groups — especially those on the tax side making suggestions for tax reliefs — should be presented in this format. It would then be clear to all policymakers, including members of the joint committee, who would benefit from all the different proposals made. We are being transparent and up front.

There is a proposal that all major policy statements should be poverty-proofed. We believe we are doing this. The challenge is for all other groups to let us see what they are saying with a similar analysis.

The distributive impact would be skewed very much towards lower income groups, with cash gains of between €5 and €11. Some 70% of aggregate gain would go to the bottom 30% of the population. The richest deciles — the top 30% of the population — would lose a net €59 million but within this 30% there would be winners and losers. The winners would be those taxpayers with children because they would gain through child benefit, while the losers would be those without children. Is that not what we are trying to achieve? We want to support families and children across all income ranges. That is the strength of child benefit compared to simple tax reliefs which are generally regressive in terms of widening the tax bands.

The next analysis is of the impact of the Combat Poverty Agency's proposals on poverty. This looks at the change in the percentage of households on lower median incomes compared to a neutral budget. At 50% of the median, there would be a fall in relative income poverty of2%; at 60%, it would be about 1.5% and at70%, around 1.75%. These are significant reductions. There is often a mystique surrounding relative income poverty as there are so many factors at work. Therefore, how can one reduce it? Here is one way. People will argue about the employment effects but here is the first round impact of a tax-welfare package. We can see clearly that there would be a strong reduction effect in the way we allocate resources.

To summarise, welfare reform is the key to reducing the high rate of relative income poverty in line with best practice in the European Union. With additional resources, there is an opportunity to intensify the redistributive impact of recent budgets. The policy priority is meeting outstanding welfare commitments and achieving some reduction in the tax burden of the low paid. There is no justification for major tax cuts. We need to bear in mind — this point is somehow lost — that every year for the last five there has been a Government subvention of €500 million for those with SSIAs who, in the main, are taxpayers. That is happening. As it is not factored in here, it needs to be borne in mind.

Child benefit is a targeted alternative to tax cuts and perhaps is the key choice. We want to reward work and support early childhood education and care. This is not a short-term fix, it also has a long-term effect in rewarding work, supporting early childhood education, trying to break the cycle of educational disadvantage and inter-generational poverty.

Deputy Stanton

I welcome the representatives from the Combat Poverty Agency and congratulate them for the work they are doing. The CPA is an independent agency of the State and acts as an adviser to the Government. Its work must be taken on board by policymakers, including the Government, Deputies and Senators. As I attended the launch of this document a number of weeks ago, I have been well briefed.

How does the agency measure the level of relative income poverty? Will Mr. Walsh explain, in layman's terms, exactly what his understanding of the term is? How does he arrive at the median mentioned? How is it calculated? Where does it come on the scale? Where is the low and high end in the continuum?

Mr. Walsh referred to the number of years during which the level of relative income poverty — the acronym is RIP — increased. Will he tell us what the figures are? For how many years have people been living in relative income poverty? What are the trends are in this regard? He also said there was an increase in the numbers of working poor. I am particularly interested in this because we keep being told there are more and more people in employment, yet this seems to mask the relatively new phenomenon of the working poor. The people concerned seem to be caught in a trap whereby they are often not able to access many of the supports available because they are in employment. Some are paying high rent for property and may have small children, although the income from one working partner is relatively low. If it is a two person household, the second parent often cannot work due to child care costs — he or she would have to pay for a childminder. Mr. Walsh says employee households account for 17% of the total. Is this figure rising or falling? What have been the trends in recent years? Will Mr. Walsh also say something about the age profile? Is the average age falling or rising? My own guess is that we are finding more and more young people involved in the working poor category, but I would be interested to hear Mr. Walsh's expert analysis.

Mr. Walsh said welfare payments have fallen behind in relative terms. Will he expand a little more on this interesting point?

I continually hear about the increase in the medical card income allowance for children. The Combat Poverty Agency referred to larger families. Is it possible to define what is meant by "larger families"? Figures of €22 per week for larger families and €14 per week for smaller families were mentioned. Would €14 be enough? I find that increasingly families are caught in a trap whereby if their members are working, they cannot get a medical card. As they face very high costs, they often postpone going to the doctor for as long as they can. When they do go, they may have to pay up to €100 in doctors' fees and medication.

The Combat Poverty Agency wants to bring the qualified adult allowance up to a figure of 70%, with which I would agree. How does the agency believe the family income supplement is working? Should adjustments be made to it also as those in this category appear to be caught? Participants in community employment schemes on relatively small incomes are barred from receiving the supplement. I would like to hear the views of the delegation on this matter.

Mr. Duncan

I will leave it to Ms Johnston and Mr. Walsh to decide how to respond.

Ms Johnston

I will deal with measurement of the level of relative income poverty. It is measured using information from a survey of households. Disposable incomes are calculated. This shows how much people have to spend. They are ranked from the lowest to the highest income and the median is the middle income, of which we use a figure 60%. In 2001, the most recent year for which data are available, the figure was €164. Allowing for inflation, this would now stand at a ballpark figure about €180 but I should not be quoted on this as I would have to calculate the exact amount.

I will let Mr. Walsh deal with the number of years issue. When we talk about living in consistent poverty for a number of years, this is calculated as being two of the past three years, including this year. As the measurements I have described are used by every country in Europe, in as far as we can, we are comparing like with like. Consistent poverty is about being on a low income and deprived of basic necessities such as not having a coat, a pair of shoes or a meal. The problem with having such a measurement across Europe — such a measure is being developed — is that it is very difficult to have deprivation measures common across Europe. For example, while heating a house is important in Scandinavian countries, it is much less important in Mediterranean countries. Many such issues are considered in calculating the measurement.

As some of the questions are more technical, I will let Mr. Walsh deal with them.

Mr. Walsh

The duration where people are poor is two of the previous three years. In 1997 approximately 10% of the population were considered persistently poor, which figure increased to 16% in 2001. Effectively, three quarters of those who are poor have been considered persistently poor, which is a source of concern. Such a long-term problem will erode our resources and eventually create bigger difficulties down the road.

The Deputy asked what is driving this. We are seeing the detachment, almost, in income terms of those on social welfare from the rest of society. While welfare payments have increased, in many cases in line with wages, when other elements such as tax reductions are factored in, they have not kept pace in recent years with the rest of society. This is resulting in a filtering effect. As living standards rise, we find that increasing numbers of people on social welfare are falling into the relative poverty category.

Another trend which gives cause for concern is that the gap between the poor and the non-poor is widening. The step-up required from being poor to non-poor is bigger than it was a few years ago. People are sceptical about use of the term relative income poverty, especially in circumstances where the economy is growing rapidly. We can sympathise with this point of view. However, it is not possible to ignore what is happening because this problem will come back and bite us in a few years time, bearing in mind the trends and those affected. Pensioners whose poverty risk rating is 50% will never be free of poverty because they will never get a job. We are talking about a lifelong scenario.

As the gap is widening and the duration lengthening, all these matters will come home to roost at some stage. As I said, when we re-evaluate the consistent poverty measure taking into account rising living standards and expectations, we will find — as we are already seeing — that, using a new definition, the level will rise again. We simply cannot ignore the level of relative income poverty which makes a difference and will continue to do so in the years ahead.

In one sense the working poor are the result of the Celtic tiger. Their poverty risk rating has not increased. They are not more likely to be poor, unlike those on social welfare who are definitely more likely to be poor now than was the case a few years ago. The risk of an employee head of the household being poor has not increased. We now have so many more people working. The risk of poverty for the working poor is at about the same level — 10%. However, as more people are working, more fall into in that category. This problem is slightly different from the other. We have a persistent problem in that more people are being caught as more people are working.

We have undertaken a qualitative study to investigate the working poor to try to establish more about issues such as the transition from welfare to work, how well FIS and other benefits are working, and the dynamics within households — the benefits and drawbacks. When this is complete, we will be in a better position to respond. I recently saw the results of a study by the European Foundation based in Loughlinstown of the working poor in Europe. This is a Europe-wide issue, not simply an Irish one.

The Deputy asked how well family income supplement was working. It is still not working very well. I believe the uptake is approximately 66% which means one third of the population are still not receiving it. A study is being carried out to investigate the second tier means-tested income supports such as CDA and family income supplement. We may need to consider another model of delivering means-tested income supports. The UK model in which these supports are delivered through the tax system may be the way to go. However, we need to research the matter further.

The figures we chose for the increases in the medical card income allowance for children of €14 and €22 were based on a report on medical cards and eligibility limits issued by the health boards on behalf of the Government which recommended these figures. It recommended increasing the limit by €22 for the fourth and subsequent children. We believe it should be for the third and subsequent children as for the purposes of child benefit, larger families are recognised as those with three or more children. We are simply going with the report. One could argue it is not enough but we are saying the report must be implemented before we move to the next stage.

It is true medical costs are more critical. A recent report by our sister organisation, Comhairle, drew attention to the high rate of medical inflation. Ability to attend a family doctor is now a much more critical issue than it was some years ago. Our chairperson has much experience in this area. We might look at the possibility of giving some people access to free family doctor care while they would continue to pay for medicines. The scheme could be tiered. The GMS is an all-or-nothing scheme which creates an enormous gap. The risk factor in attending a doctor is too high for many who might face a bill of €100 per week.

Mr. Duncan

Access to services is becoming more important than income levels. They are two separate issues. Health care is important. We are putting together a new three year strategic plan which will focus on the two dimensions of income adequacy and access to services. Both are important. Health services are not the only services but the ones which cause most difficulty and about which people are most concerned. The other area covered in the strategic plan will be work at a local community level.

When I joined the Combat Poverty Agency, from the outside I was sceptical about relative income poverty. As long as everyone was better off, I wondered if it mattered that some were better off than others. Criticism of the agency in the media and from economic commentators usually centres on this issue. After three years Jim Walsh and Helen Johnston have convinced me that relative income poverty matters and that one must focus on the two measures. First, if the economy is improving, everyone should benefit by the same amount. There is no logical or acceptable reason lower income groups should benefit at a lower rate. Second, if the gap widens, it becomes harder for those living in poverty to move up. I am a convert. Converts always speak with the most passion.

Deputy S. Ryan

I compliment the Combat Poverty Agency on its pre-budget submission. All of its documents and presentations are of the highest standard and of great benefit to members. We appreciate this.

We are still dealing with last year's budget and Social Welfare Act. The Minister has given a commitment to review the 16 vicious cuts of last year. Which of these does the agency see as a priority?

Ms Johnston

We shared the concerns of many about the cuts of last year and welcome the Minister's statement that both he and his officials will review them and their impact. The social welfare allowance rent supplement is having an impact. We welcome the indication that responsibility for this payment should be transferred to local authorities. We agree that this is a housing issue and that people should be adequately housed. Nevertheless, in the short term the rent supplement must be retained in some areas. The measure needs to be reviewed. The measure relating to child care and crèches must also be reviewed. We welcome the fact that all of the cuts are to be reviewed and hope changes will be made where necessary.

Deputy Boyle

Like Deputy Ryan, I see much value in the submission. However, I am curious about what is not included in it. A large amount of money has been suggested for targeted areas. Why were these priorities chosen?

The Combat Poverty Agency recommends increasing the PAYE tax credit to help the families of lower paid workers. Did it examine the idea of increasing the tax exemption level? The real concern is that those on the minimum wage are paying tax. Would an increase in the PAYE tax credit address this problem sufficiently?

The proposed increase in child income support is modest. Combined with last year's increase, it only goes marginally above what was promised for the end of last year. Is there any reason this amount was selected? There is a debate as to whether child dependant allowances should be increased. They have been frozen since 1994 which has had an effect.

The agency has stated it could see a carbon tax being successful but the Government has decided not to proceed with one. One of the reasons cited for this is the effect on the disadvantaged. As the agency has carried out research into this issue and shown how it could be applied effectively, if the Government was to change its mind and introduce such a tax, what increase in welfare payments would be required? The agency calculates the increase needed to meet current income support commitments at €12 per week while the Conference of Religious of Ireland calculates it at €14 per week. What figure would be required if a carbon tax was introduced? Would it be better to make a direct payment increase or increase the fuel allowance?

Ms Johnston

We thought long and hard about where we should pitch the level of child income support. We made our proposal because the Government had made a commitment to pay €149 per month, which amount was to have been reached two years ago but was extended to this year. Meeting this commitment should be the overall priority. That is why we selected that amount and made its payment a priority.

We have argued the need to increase child dependant allowances. Families on welfare have fallen behind in that regard. This year we decided the priority should be to fulfil the child benefit commitment. Along with others, we will be looking at the whole child income support package for low income families and bringing forward proposals next year on how this should be done. Sustaining Progress includes special child poverty initiatives, on which we will be working. The National Economic and Social Council is doing work in this area. Next year we will have new information and will make proposals on how to eliminate child poverty through income support.

The services area is very important in addressing child poverty. Our comparative research across Europe also suggests this. We will be counterbalancing our income support proposals with improvements in services.

I will ask Mr. Walsh to follow up on the other issues raised.

Mr. Walsh

We had a tax exemption system which was looked at by the tax welfare review group which highlighted the high marginal tax rates which were having an impact. A taxpayer who went over the threshold was suddenly exposed on all his or her income. Exemption thresholds are cheap to operate but create problems by trapping people in poverty. The outcome was a move into the tax credit system which is a more progressive way of targeting resources. We need to stick with this approach. The most targeted and least expensive way of doing this is through the PAYE tax credit system because it benefits low earners most. That is the approach we want; that is the group we want to target.

Deputy Boyle

I agree that tax credits are more effective. In the event of lower paid workers being on such a low wage that they do not benefit from the tax credit, or only partially benefit, does the Combat Poverty Agency have a view on the question of refundable tax credits?

Mr. Walsh

Yes. At this stage we are not in favour. That would be a blunt instrument because anyone who went out to work for a day could be eligible for refundable tax credits. It would be a scatter-gun approach, but we do not have a formal position on the issue. A better way of targeting resources would be through reform of the family income supplement, perhaps on the tax side, and examining how the family tax credit works. In the United Kingdom the idea of an integrated child tax credit was examined. It needs to be more targeted because the other is a scatter-gun approach. We need to research the issue more. We will be making a submission to the review when we will have a more decisive view.

On the carbon tax issue, in our submission we referred to our budgetary strategy which seeks to broaden the tax base. We said the decision not to introduce a carbon tax was regrettable. In one sense such a tax is a threat but it is also an opportunity. It is a threat in the sense that it would impact more on low income groups. We made this argument. However, it would also generate up to — depending on the size of the levy — €500 million or €600 million per year. We asked how these resources could be spent and came up with three approaches, one of which was to compensate people for higher fuel costs. We examined the free fuel allowance which we see as the best mechanism as it is a household payment.

The second approach was to put a lot of money into energy efficiency measures. As has been said, fuel allowances heat the sky. If one has an inefficient system, one is wasting a lot of resources. Therefore, can we look at insulation and the fuel efficiency of houses? Energy Ireland has a low income fuel efficiency programme into which more money should be put. Any money left over could be shared out and used to allocate more resources to those on low incomes through higher increases. It could have been done in a way that would have ameliorated the problem and improved the position of those on low incomes by tackling the root cause of fuel poverty. We made a submission along these lines. It is a big decision which has not gone away.

Deputy Boyle

It will not.

Deputy Connolly

I compliment Mr. Walsh on his submission. I hope he will be delivering the next submission from the Combat Poverty Agency's new home in Monaghan. Perhaps he will comment on how soon it will be relocating there. We are certainly looking forward to it coming.

A few issues caught my eye, including the fact that Ireland is one of the worst performers in Europe as regards relative income poverty. I wonder if this includes all 25 EU member states.

Is the 17% figure for the working poor increasing? Many are trapped in work. It is surprising that 35% of poor families are working households.

On welfare payments and supports, will Mr. Walsh comment on the savings incentive element in respect of the MABS? I find it intriguing that people in such circumstances could be encouraged to save.

Much emphasis should be placed on programmes of child income support and the further expansion of the provision of school breakfasts and hot lunches. Children learn much better when they are well fed. What would it cost to provide such facilities nationally?

Mr. Duncan

I would like to comment on decentralisation. As the committee knows, we have experience in Monaghan as we jointly run the peace and reconciliation programme with ADM. Therefore, the area is familiar to us. I would be dishonest, however, if I said there were no issues to be addressed in terms of the Combat Poverty Agency relocating to Monaghan. State agencies tend to be different from the public service or the Civil Service in the sense that people join a particular agency because they have an interest and relevant expertise. When I asked for the views of staff, many individuals indicated they would certainly support the principle of decentralisation which is essential. However, many of those concerned had families and it was not always practical to move them. There is not a huge number queuing up to move to Monaghan.

Deputy Carty

They will be able to move up here.

Mr. Duncan

In fairness, we must respect the views of staff. We have to address these issues and find a way of accommodating the move to Monaghan, accommodating the staff and making sure we can still serve the various areas we currently serve. We are working on this. We have commissioned an impact study to see how we can service the business if we move. That is an honest answer to the question. There are issues that we have to address and if staff are unable to move for personal or family reasons, we have to ensure they will be accommodated within all the various moves that take will place.

Deputy Carty

I welcome the representatives of the Combat Poverty Agency. As usual they have made a good presentation. On the issue of budget priorities, Mr. Walsh mentioned providing a savings incentive as part of the MABS for indebted households. How does he envisage this happening? I would like to get a handle on that point.

Another point related to a summary of the distributive impact. Mr. Walsh has dealt with some of the questions posed but has he discussed this with other agencies? What is the feeling across the board?

Mr. Walsh

The Deputy is right about the savings incentive scheme; indebted people saving sounds like a contradiction but it is a question of trying to get at the root cause of their indebtedness. Everyone needs a cash reserve for one-off items. Those on low incomes tend not to have this and get into debt by borrowing from a moneylender but the situation spirals. MABS encourages people to set aside small amounts to pay off their debts. As part of its debt recovery process, a small amount may be set aside, perhaps in a credit union savings account, through the special budget management accounts. When they pay off their debts, the people concerned have a cash reserve which can help them. We are saying they are relieving the problem but they are also trying to prevent it from recurring. Let us reinforce this and encourage them a little more. Let us give them an incentive. If they put aside a small amount of money, say, €2 or €3 per week, they would get a matching €2 or €3, in order that in a few years time they would not be coming back to MABS because they had slipped back into debt. They would have built up collateral which would help them in future.

The issue of savings is one for everyone, not just for middle-class or other better-off households. Everyone needs to save for whatever reason, although the causes may be different for those on low incomes. It could be a First Communion or death in the family but everyone needs a reserve. In the United Kingdom the idea of a savings gateway has been introduced. It is said those not saving, the ones we want to target, are those on low incomes. It is similar in the pensions area with PRSAs. Those not involved are often in the lower income groups. We propose targeting where the need is greatest and then help to build reserves in the future. The idea of saving has already been tried in MABS. We are proposing that it be expanded and extended in a targeted fashion.

Ms Johnston might want to talk about voluntary groups.

Ms Johnston

We meet officials from the Department of Social and Family Affairs to discuss our proposals and their distributive impact. We also regularly meet officials from the Department of Finance to discuss them. We further discuss them with the community pillar and platform. We also work with and use the technical capacity of the ESRI in assessing them. Is that the information the Deputy sought?

Deputy Carty

Apart from the State agencies, how do other agencies which deal with the issue of poverty and social welfare payments view this matter?

Ms Johnston

Mr. Walsh will address that question.

Mr. Walsh

We met the voluntary community pillar recently. There are differences in emphasis. Different groups propose different amounts. We offer a package whereas other groups just give a headline figure. We look at the bigger picture and consider how big the tax and welfare package is and how it is shared out, which is the key issue. While some groups were critical about the amounts involved, the direction taken in the past two budgets was the right one, as it focused on and prioritised those on low incomes. We went from €6 up to €10 and I hope we can go higher. An approach of raising welfare recipients to one level is limited. Considerable resources are allocated to the tax side which tends to perpetuate the problem. The difference between us and other groups is that we consider the whole package, cost everything and present it together. The differences in approach are very limited; we present the material in a slightly different way.

Chairman

The Combat Poverty Agency is an advisory group to the Government. Its role is to give independent advice. NESC which introduced the consistent poverty measurement now accepts it is no longer accurate, as the delegation has proved. A number of indicators within that measurement have not been updated since the mid-1980s. Even if the world stood still, the level of consistent poverty would have to fall because current valuation techniques were never applied. Since it is now such an outmoded and outdated concept, why does the Government persist in using it as a measurement? Relative income poverty is the measurement used across Europe and accepted particularly by academics as the more accurate measurement. Has the Combat Poverty Agency indicated to the Government that it is no longer appropriate?

I cannot help being struck by the figure of 35% of poor children who live in households with someone who is employed — I believe it may be even higher. I am one of ten children. In the 1960s and 1970s even those on relatively low incomes never had to pay tax because of the child tax allowance. It was a way of ensuring people were never trapped within the taxation system. While they had to account for themselves, they never had to pay tax. The abolition of the child tax allowance has had a significant impact and the figures presented today have vindicated a long held view of mine. Some help should be given to the families concerned. Some of them may well be paying tax.

Earlier the delegation mentioned contradictions in terms of savings. I see no contradictions; the agency is right and the committee would support its proposal. Two weeks ago representatives from MABS appeared before it and we had a detailed and worthwhile discussion. We have taken steps to pursue these matters with the Minister for Justice, Equality and Law Reform and other Ministers. It is very important to try to help. If someone saves €1 or €2 per week, over six months, as the agency indicated, or even over 12 months, this could yield approximately €200. To many who are well off €200 means nothing. However, for those below the breadline and scraping by every week, an extra €5 or €10 means a considerable amount.

I would wholeheartedly support any such measure to help people and bring equity into the system. Many well-off people, including ourselves, can contribute the maximum amount to SSIAs and reap a considerable benefit. Those fighting for survival cannot avail of this system. I would be eager to see the agency pursue this matter. I know it has made its presentation to the Government and that the Minister for Social and Family Affairs, Deputy Brennan, has indicated he is receptive to new ideas, as he has made clear in correspondence to the committee.

Does the agency have a role in advising the Government about poverty proofing? We advised the Government on 3 December 2003 about the measures. As ordinary individuals, we advised it about poverty proofing. Has the agency made submissions on the cuts which the Minister for Social and Family Affairs has said he is now reviewing?

Ms Johnston

I will take some of the questions posed and let Mr. Walsh or Mr. Duncan follow up. While most would agree that the consistent poverty measurement is now outdated, a number of issues arise. The figure fell to 5% in 2001 and the Government has committed to getting it to 2% or less. We should undoubtedly try to achieve this. None of us wants to have people living without the basic necessities in today's society. This problem needs to be eliminated.

Research carried out by the ESRI considered a number of other indicators that might be used and compared people living in poverty with people on low incomes just above that level. It was based on data from 1998 and published in 2000. The ESRI found a significant gap between those without the basic indicators and the rest of the population rather than with slightly improved or updated indicators. It has carried out more recent research and its view is that there is no longer a gap to the same extent and that the indicators need to be updated. It suggested four items. While I cannot remember them off the top of my head, they included such items as being able to buy a newspaper and a birthday present for one's child. These are still basic items which most of the rest of us take for granted. Under the national anti-poverty strategy, there is a technical group which represents the channel through which these changes can be brought about. The information is now there and we need a Government decision on a system to bring about those changes. We have always argued that it is useful to have a range of measures. We need to understand what consistent poverty is and what relative income poverty is, as well as seeking to improve the means of measuring such poverty. We should look at that in European terms and there are other measures we should examine as regards income distribution. That is only one of a number of measures.

We have a role in poverty proofing. We were in the developmental stages of poverty proofing when it was piloted in 1998. Since then we have continued to poverty proof our proposals and suggest that other proposals should also be poverty proofed. The National Economic and Social Council undertook a review of poverty proofing in 2000, which found that there was an awareness and some acceptance of the need to poverty proof, but there were technical difficulties in carrying it out. There was a need for greater support and training to be able to do that. That is something the new office for social inclusion is tasked with taking forward. We will work with it in supporting it to do that.

On our own initiative we have worked with local authorities to assist them to poverty proof their proposals. We have a practical manual, currently at the publishers, that will be available to local authorities to help them in this technical exercise. We have also been able to provide some support to assist local authorities to do that. Poverty proofing is important but it is still at a developmental stage and we need a lot more work to increase awareness of it along with its effectiveness.

Mr. Walsh

The child tax allowance was not abolished but its value was converted into a unified child benefit along with the children's allowance. We agree that child benefit is the optimum way of supporting families. It has gone from being a marginal residual form of income support to being a main form of income support. The Government has increased it and we feel that was the best approach to adopt. One still needs to look at a second tier of income supports. As I said earlier, we need to re-examine the idea of a child tax credit, rather than an allowance, because the allowances benefited better-off people more than lower income groups. A second tier is required but how can that be structured? In the United Kingdom, they have introduced a child tax credit but it is almost like a means test. It goes up to a certain income band after which one will not receive it.

Child benefit is the key thing on the table and we should ensure it is fully increased, as it should be. When we reach that point, let us examine top-up measures that could target low income groups with children, as the Chairman suggested. It needs to be a different form of child tax allowance compared to what went before.

Deputy Finneran

I apologise for being late as I was attending another meeting. I welcome the delegation from the Combat Poverty Agency. While the point was addressed somewhat in the agency's submission, I believe that the best way out of poverty is through employment. Ms Johnston suggested in the submission that it is more appropriate to have a targeted child benefit alternative to tax cuts. In modern Ireland it would be more appropriate for people in low-income employment and who have families to be outside the tax net. It is important to provide tax breaks through the budget to take those on the minimum wage out of the tax net. We should aspire to go further than that. In recent years, many people have been taken out of the tax net but that is not sufficient because people can lose many benefits due to taking up employment.

The CPA's submission referred to the family income supplement which needs to be expanded and increased if we are to provide the type of support that I consider is the way forward. In 2005, we will be bringing 40,000 to 50,000 people into the country to work, but we should provide better opportunities for people already here to take up employment. A number of areas should be targeted in that respect. One of them is the family income supplement and the other concerns benefits.

Medical expenses pose one of the greatest problems facing families today. It may not be in the agency's brief but the ability of people to attend their family doctor is important. They should be able to obtain medicine without having to pay. The committee is aware that parents are often reluctant to address their own health problems, preferring to give priority to their children's health care. Does the agency consider that matter as a priority in dealing with poverty, along with the lack of opportunity for people to take up employment, which is unfortunate?

In the past, this committee has debated the fact that the Department of Social and Family Affairs targets people who cannot demonstrate that they have been seeking employment. I represent a rural constituency and have heard Deputy Ring and others discussing this matter. We are at one that it is practically impossible for people who live in rural areas to gain employment due to the lack of public transport. The last budget targeted some of those people through the rural social scheme which has been a great success. Last night, I attended a meeting in Boyle, County Roscommon, where 170 people in that area alone have availed of the scheme.

Public work schemes, rather than community employment schemes, could enable people to work in their local communities by providing a good public service for which they are paid. In many cases, however, they will not do that because it is not financially beneficial due to tax, the inadequate level of family income supplement, and the fact that they do not have medical cover for themselves or their families afterwards. How does the agency think the Minister should address that specific issue?

While I have not gone through the agency's document in depth, I did not see any mention of the carer's allowance. As a public representative, one of the greatest problems I find is the annoyance at the burden families must bear as a result of providing care in the home, in many cases where one spouse earns enough to put them beyond the means test limit. In that area much hardship is brought on families. While it may not be poverty in the sense we know it, it certainly denies an opportunity to a spouse to become productive in the workforce. I would like the witnesses to comment on this matter. The committee has put considerable time into this issue in the past year. A detailed document compiled by the committee was sent to the Minister and has been made public. The Minister also appeared before the committee to discuss the matter. If witnesses have a difficulty with my points or wish to offer an alternative, I am willing to listen.

Ms Johnston

We share many of those concerns. We believe our pre-budget submission is about improving the incomes and opportunities for welfare recipients and the low-paid. We believe, as is documented, that employment is the best route out of poverty. We need to get people into employment and support them to do that. However, many people on low incomes or dependent on social welfare benefits have little or no opportunity to get into employment because they are children or pensioners, or have quite severe disabilities. Obviously people with disabilities can work and we need to give them more support to come in line with other European countries.

The focus of much of the work we have done, including the proposals presented today, is on the need for jobs. Jobs must be available for people to take them up. People need education and training to get the skills to take up jobs. As the Deputy said, we need to review tax and the FIS system, which we have considered in our proposals. In the early 1990s I was part of a group working on the integration of tax and welfare. At that time great attention was paid to replacement ratios, incentive gaps etc. Those are now much wider than they were then because of tax cuts. It is not so much about that interaction anymore. It is more about ensuring people have the skills to be able to do the job. We have proposals for other services, which were mentioned, such as transport, child care and elder care to allow people to have supports to arrange to have their children looked after or to look after them at home, or to support other relatives as well as addressing the medical costs.

We are carrying out a qualitative study involving talking to a number of families in low-paid work, which will consider the questions the Deputy has raised on the barriers for people moving into work. We need to establish whether people stay in work when they start or whether they work for only a short period and end up back on welfare. We need to consider what supports are required to not only move people into work but also to enable them to stay in work and progress.

Deputy Finneran

Do the witnesses regard any of schemes as an enticement not to work? Could they be focused differently to help in this regard? I will give an example. A person on social welfare with a mortgage can be dealt with through the system. As it is all about bread on the table, such a person when offered employment must decide whether it is better to get some small tax relief on the mortgage through employment or to stay in the social welfare system and get a subvention for the mortgage. Does the Combat Poverty Agency see a better way to address that scenario that presents itself to me as a public representative every day?

Ms Johnston

We have been considering similar issues that arise for lone parents. I will quote another example. A lone parent may face the same choice as to whether to take up a job or stay on welfare. In this case a number of issues need to be addressed, not only on tax relief but also in terms of having skills and being able to take on the job. Because many lone parents may have left school at a young age they may not have the skills and may need the opportunity to acquire them. They may have problems with the hours to be worked or with finding child care facilities that are either available or affordable. These are the questions we need to address on a day-to-day basis. We need to offer support through the provision of child care and income support to address these issues. I am not sure if that answers the question, but it touches on the issues.

Deputy Finneran

I picked on the issue of people with mortgages because most such people opt not to take up employment. People can identify with such cases and can understand exactly what is involved. Ms Johnston mentioned other examples such as lone parents. Some years ago substantial mortgage relief was offered although it might not be regarded as being so substantial now. Should we consider such a measure now to make it more attractive for people to move into employment rather than staying in the welfare system?

Ms Johnston

No, we do not recommend mortgage relief per se, as we believe it benefits people on higher incomes. Because of the price of houses, there are difficulties in——

Deputy Finneran

I am not speaking of tax relief. I am talking about a subsidy towards mortgage repayments.

Ms Johnston

I thought the Deputy mentioned mortgage tax relief.

Deputy Finneran

I apologise; that was not what I meant. In the past a mortgage subsidy was available which lasted for up to five years.

Ms Johnston

Is the Deputy referring to the SWA scheme, mortgage supplement?

Deputy Finneran

I am talking about a mortgage subsidy we had some years ago, which no longer exists. Would some measure in that area address the problem I and other members find whereby those in employment cannot get mortgage relief except through some kind of supplementary welfare if things go really badly? Those on unemployment assistance can get their mortgages paid on a regular basis. If they take up a job, that payment disappears, which is a major disincentive for those in that category. Has the Combat Poverty Agency considered this matter and does it have any proposals in this regard?

Mr. Walsh

The rent supplement, which is the other side of the mortgage supplement, can be claimed for a number of years as a transition payment. It would seem logical that the same would apply to the mortgage side.

Deputy Finneran

However, the Combat Poverty Agency has not made a submission on the matter.

Mr. Walsh

Not specifically. Earlier this year we carried out a study of housing costs and poverty and the report made some points about the need to refocus the subvention for housing to some of the more vulnerable groups. I can send the Deputy a copy of that report. This proposal is not in today's submission.

Deputy Finneran

Would the agency support the concept and see the benefit?

Mr. Walsh

I can see the Deputy's point. Many benefits are very tightly means tested or linked to being on welfare. Someone coming off welfare loses those benefits, which is a huge issue. The two matters, which need to be addressed, are whether it can be retained for a number of years and whether the method of delivery can be changed so it can be tapered. Earlier we spoke about medical cards and asked whether the qualification rules could be tapered so that the income ceiling is not the be-all and end-all. Under the present rules people either get a medical card or do not. Without a medical card they can be faced with costs of up to €100 per week depending on circumstances. Means tested systems give rise to a very narrow pinnacle. There is a huge difference between being on one side or the other.

Senator Terry

I thank the Combat Poverty Agency for appearing before the committee this afternoon and giving such a comprehensive report.

The suggestions related to early childhood education and care appear to be aspirational. We all want to address the problems that exist in the area but have these proposals been costed? They are still vague. The first suggestion is for a direct subvention for early years care for low income families by accredited child care providers. How many children would be provided for in the budget for that? We would love to provide every child from a disadvantaged family with such education but how was that costed and how many children were included? I could say the same about early morning pre-school provision. What numbers would that involve? What provision is there in the agency's figures for early school leavers to ensure they stay on at school?

Mr. Walsh

Compared to the rest of the submission, it is vague and the costs are not as precise. We want an allocation of €100 million for targeted social expenditure, with money allocated for areas like this. At present, access to social child care exists through community and voluntary groups and designated areas of disadvantage. How will children outside those areas of disadvantage access care? Access should be broadened by giving people a subvention they could carry to the provider they choose. That would encourage a social mix and give wider access, an idea developed by the Commission on the Family. People on low incomes should be prioritised, particularly if they live in non-designated areas, to receive a subvention for accredited child care providers.

We did not have numbers for children who would benefit from early morning pre-school provision. We picked the proposal from the recent OECD report on early childhood education and care. This is not our core area of expertise and we supported the most sensible proposals that are already on the table rather than researching something outside our area of expertise. If the OECD did not give the figures, neither did we. We could do more work in the area but €100 million should be set aside for these measures and then roll them out rather than doing everything in the first year.

The programmes to prevent early school leaving should be improved. We are working on access to education services and we will examine the issue in that context. We did not see it as a budgetary proposal because it relates to tax welfare and an expenditure item in the Book of Estimates. It is important but we did not see this as the vehicle to bring it forward. We could examine the question of a payment for children of low income families to stay on at school after a certain age. That is a tax-welfare measure, the merits of which should be examined.

Chairman

I thank Mr. Duncan, Ms Johnston and Mr. Walsh. This was a useful meeting and we could probably spend another few hours on the subject and still be going strong. The questions asked indicate the level of interest in this area. I compliment the Combat Poverty Agency on its excellent presentation, which is easy to read and absorb. We will not wait for the next pre-budget submission to invite members of the group back before the committee, we will invite them before that because this committee is innovative and wants to act as an instigator of ideas that can be developed. We are interested in carers and if the group got the opportunity to look at that sector, where there is significant poverty, it would be useful. We will alert the group about the areas we wish to address.

Mr. Duncan

We appreciate the committee's support. We are producing a new three year strategic plan which we will send to it because we would like the committee's input into it.

Chairman

We would be eager to participate in that process.

The joint committee adjourned at 4.20 p.m. until 2.30 p.m. on Tuesday, 16 November 2004.