JOINT COMMITTEE ON SOCIAL AND FAMILY AFFAIRS díospóireacht -
Tuesday, 4 Apr 2006

Budget 2006: Presentation.

Chairman

On behalf of the joint committee, I welcome the representatives of the Combat Poverty Agency, Ms Helen Johnston, director; Mr. Jim Walsh, head of research and policy; and Dr. Jonathan Healy, policy research analyst. Having attended the committee on several occasions, the witnesses will be well aware of the following warning, which I am obliged to repeat. Committee members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise, or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. Members who wish to make a declaration on any matter being discussed — I am sure we could all make a declaration on poverty at this stage — may do so now or at the beginning of their contribution. Members are also reminded that if there is a possibility of there being a conflict of interest, they should make a declaration of interest now or at the beginning of their contribution. I draw attention to the fact that while the members of the committee have absolute privilege, the same does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses would have qualified privilege, the committee is not in a position to guarantee any level of privilege to those appearing before it. I am sure difficulties will not arise but I must draw attention to the position.

I call Ms Helen Johnston on behalf of the Combat Poverty Agency.

Ms Helen Johnston

The Combat Poverty Agency welcomes the opportunity to make a presentation to the committee. It is a State agency which has a remit to advise Government on policy issues pertaining to poverty, particularly through its research work, project work and public education work. We wish to focus a number of issues at today's meeting.

Members will recall that prior to the budget we made a presentation to the committee on our pre-budget submission. One of the key issues we address on a daily basis is the fact that despite the Celtic tiger, poverty is still a reality for many in Ireland. Just under 7% of population live in consistent poverty, which means they are on a low income and deprived of basic necessities. One fifth of the population, or 760,000 people, are at risk of income poverty, which means they live on less than €185 per week. Key risks are experienced by lone parents, large families, people who are unemployed and, in particular, children. The Government has a national action plan against poverty and social exclusion. There is a commitment in the plan, which is currently being revised, to eliminate poverty.

We are here to make a presentation on the analysis of budget 2006 from a poverty perspective. Mr. Jim Walsh will present the issues from that analysis. We will then consider the promotion of equity in the tax system, with a particular focus on indirect taxes, on which Dr. Jonathan Healy will make a presentation. We made a submission recently to the Department of Finance on the next national development plan and key social inclusion issues therein, on which I will make a submission. I invite Mr. Jim Walsh to speak on the budget and its impact on poverty, which is part of our policy advisory role.

Mr. Jim Walsh

Our analysis of budget 2006 completes the cycle that began with the submission we made on the budget. Following that, we assess the policy direction of the budget from a poverty perspective. As Ms Johnston said, this fits with our policy advisory role, prior to and following the budget.

In carrying out the analysis, a primary focus of our work is to assess the poverty impact of the budget. This is a requirement of the national action plan on poverty and the national anti-poverty strategy, the provisions of which include examination of the impact of various policy initiatives on poverty. This is a methodology that is still in development. Through our work, we try to show how one can apply a poverty impact analysis to a measure as major as the budget. In doing that, we build on some of the work done by the Department of Finance in terms of carrying out a proverty-proofing of the taxation elements of the budget. We examine the taxation and welfare elements together.

A distinctive element of our analysis is the use of a tax welfare simulation model to obtain a better insight into the impact of the budget on income equality and poverty. The difference between a tax welfare simulation model and the standard approach used in the budget, which examines the position of various hypothetical families, is that it is a representative sample of the total population. It allows us to examine the interplay between tax changes and welfare changes in real families. It is by far the best way of obtaining an insight into the impact of the budget at a micro level.

In applying the model, we compare the impact of the budget with a wage indexed neutral budget. We do not compare the changes in the budget with the pre-budget position. If current policy provisions — indexed welfare rates and tax bands — were increased in line with wages, we examine what then would be the added effect of the budget compared to that neutral comparator. The other feature of the model is that we examine the first round impact. We do not factor in behavioural changes, which we acknowledge are important, but we examine the output in terms of redistribution of resources. Neither do we take into account components such as indirect taxes, on which Dr. Healy will comment later, or charges that might be imposed on people following the budget. The model essentially focuses on the tax welfare component, which is the main focus of what the budget involves. In that sense, I believe we are capturing the key elements.

Budget 2006 is notable for a number of reasons, one of which is the scale of resources available in it. These resources amount to in the order of €2.3 billion, which is 50% more than those available in budget 2005. There was a large expansion in the tax welfare budget. In terms of the share-out of those resources among social welfare, child income supports and income tax, the big change compared to 2005 was the increase in the allocation on child income supports. Welfare payments received approximately 41% of the total, and that is just short of €1 billion. Tax measures received 38% and child income support benefited to the tune of 21%, or over €500 million. A key component of this was the new child care supplement. That is the overall package.

The key factor we focus on is how many resources were available compared to a neutral budget, where tax and welfare are indexed in line with wages. There was effectively a surplus of €1,248 million. These were the additional resources the Government was in a position to redistribute through the budget. It was a significant amount, and over two and half times the amount available in the 2005 budget.

The first portion of our presentation, in both its full and summary form, deals with the distributive impact of the budget. We considered this by breaking the population down into ten decile groups, ranging from the poorest 10% of the population to the richest 10%. We will deal with the poverty impact in a moment. The average cash gain per household unit was approximately €11, the equivalent of 2% per week. What is interesting is the manner in which the benefit of the budget was front-loaded towards those on the lowest incomes. The bottom 10% and next poorest group of 10% received gains of between 6% and 7% compared with what they would have received under a neutral budget. That gain tapers off the higher one goes up the income schedule. The higher income groups had a gain of less than 1%. The budget clearly had a strong redistributive focus.

In cash terms, the amount received by most groups was more or less equivalent. When €11 is given to a household on low income, the benefit will clearly be much greater than if it is given to a better off household. That is where a very strong favouring, in percentage terms, of low income groups comes about.

We considered the pattern of the last few budgets and compared it with budgets from the period 1998 to 2002. The significance of these two periods is that the first coincides with the first national anti-poverty strategy, and the second period coincides with the revised and updated strategy. The analysis demonstrates a significant contrast between the distributive focus of the earlier budgets, which were clearly giving higher gains to better off groups, and the focus of the budgets between 2003 and 2006, which are going in the other direction. The 2005 budget was most significant in this way, but the 2006 budget was even stronger in its focus on lower-income groups.

In the past four budgets, the gain for the poorest 20% of the population was approximately 17% or 18%, whereas the gain for the richest 20% was almost zero. That contrasts with the period between 1998 and 2002, when the biggest gains of up to around 10% over five years went to the richest 20% of the population. At that time lower income groups were getting less than 5%. That is a major reversal in Government policy. From an anti-poverty perspective, this was a welcome development.

At the outset I mentioned that a key element of this year's budget was the amount allocated to child income support. Approximately 20% of the resources over indexation, around €365 million, went on child income measures. We were particularly interested in considering the impact of these measures, especially in terms of child poverty. Tackling child poverty is the big policy focus in society under social partnership, as well as the focus of the Government. The next part of the presentation demonstrates the impact of the child income measures in the 2006 budget.

With regard to the impact of the child income measures in budget 2006, the average gain was €3.26 or 1%. Middle income groups tend to receive more because there are more children in these groups than there are in the bottom 20%. In percentage terms, the child income measures were progressive in that gains were up to 1% for lower income groups and tapered off among higher income groups to a fraction of 1%. The child income element of the budget was progressive because, even though the main feature of the budget, child income support measures, involved the universal payment of an early child care supplement, that payment means more to lower income households.

The relative impact of income or financial poverty is a critical measure, from our point of view and at a European level, of how well our society is performing, although the official Irish measure of poverty is based on consistent poverty. Given that Ireland has a higher level of income poverty than the European norm, this relative income measure is even more important from an Irish perspective. The budget had a positive impact on relative income poverty, with a reduction of up to 1% at the various median income thresholds. The reduction was almost 1% at 50% and 70% of median and 0.5% at 60% of median. This impact is magnified by the combined effects of the 2003 to 2006 budgets. During the past four years, relative income poverty at the 50% of median income has been reduced by 6%, a major achievement in light of our high levels of relative income poverty. It is welcome that Irish income poverty rates are clearly being brought into line with EU best practice.

I wish to briefly discuss some of the specific policy changes that were introduced in the budget. The minimum welfare target established in the national anti-poverty strategy in 2002 set out a minimum welfare payment, in 2002 values, of €150 by 2007. We began with a welfare rate of €118.80 and have reached €165.80 in real terms. Adjusting for inflation, the target figure of €150 has risen to €167.02 and will be €171 by 2007. The Government need only increase social welfare payments by €5 to meet that inflation adjusted target by 2007. However, given that the Government did not specify the mechanism to be used to adjust the figure over time, some have argued that it would be more realistic to adjust the original target figure in line with wages. Such an adjustment would increase the €150 target to €191 by 2007 and result in the significant shortfall of €26. One could say that the Government has allowed itself wriggle room in terms of the lower figure of €5.40. Given that the welfare increase in budget 2006 was €17, we can be far more ambitious in terms of targeting and going for the higher figure of €191, or plus €26.

There is no doubt that setting a welfare target of €150 has been a key driver in reducing income poverty. It has focused policy on increasing welfare rates by significant amounts. The way the Government has delivered on that in recent years has fed through in terms of income redistribution and the effect on relative income poverty. The current target has almost been reached. Setting new welfare targets for the next period of the national anti-poverty strategy becomes a critical policy goal.

I will speak briefly on child income support. I outlined in a table the level of child income support for different categories of children and through different policy mechanisms. One can see it is quite complex. There are three categories, namely, children on welfare, children in low paid households and other children. I distinguished between children under six years of age and over. There are five mechanisms for delivering child income support, namely, child dependant allowance, family income supplement, the clothing and footwear allowance, child benefit and the new early child care supplement.

The level of child income support in Ireland is now quite significant. Whatever category one picks, the level of support from Government varies between a low of €34.50 for a child not on welfare to a high of almost €100 per week for a child in a low income working family. Given from where we have come, with a very low level of child income support, the State is now among one of the better performers at European level in terms of child income support. That is a great achievement and one which needs to be acknowledged.

There are, however, a few quirky features which need to be highlighted. The level of payment for children in social welfare households is now below the Government target of 33% to 35% of the adult rate. It is now around 32%. We are slipping a bit in terms of ensuring income support for poor children is kept in line with income support for poor adults. Children in low paid households get substantially more income support from Government than children on social welfare payments who have no other form of income support. This is an anomaly because obviously people in low paid households are paid but people in social welfare households have no other form of income. We have perhaps lost a bit there.

The age differential is becoming a significant factor. In welfare dependent households, children under six years of age get a premium of almost 50% over children over six. The reason for that is the child care area but it creates some interesting anomalies. A child moving from one age to the next loses a significant amount and there are concerns about that.

The early child care supplement is a significant one for children under six years of age. A disappointing element of that is that while income support was increased, no attempt was made to link it to increased access to early childhood care and education. The Commission on the Family, which recommended this idea of a child care supplement for younger children, made it contingent on increased access to early childhood care. Income support is only half the equation; the other half must be about improving access to services and, in the case, early child care services.

Budget 2006 is strongly redistributive. It builds on the approach of the preceding three budgets but goes beyond them in a significant way. The engine of the income redistribution is the high welfare rates being delivered in recent budgets, particularly that of 2006. The child support component is also progressive, although its benefit is more universal. It is progressive in that it focuses on lower income households. However, the impact of child income support on low income households could be increased if the Government increased the child dependant allowances, which have remained frozen — and, therefore, devalued in real terms — since 1993. This is a missing component of Government policy on child support. We have been devoting many more resources to it but have tended to neglect some of the more targeted options that would give better bang for one's buck in terms of child poverty.

We are now on the way to reducing income poverty in Ireland in line with the EU norm. It is important to operate within a European framework in setting poverty targets and raising our aspirations and standards, not only to decrease poverty by comparison with previous years but also to improve anti-poverty performance in a European context. In light of our affluence, this should be our aspiration.

There are still outstanding child care issues to be addressed, particularly in the area of early child care. A critical issue, on which there will be more discussion, arises in respect of pension provision. We are conscious of it because pensioners comprise one of the social groups most at risk of relative income poverty. Ensuring adequate pension provision is critical, not only for older people on State pensions but also for the increasing proportion of the population in low paid employment who do not have access to supplementary pension schemes.

The buoyancy of the economy and the revenue being generated as a consequence should ensure that we can afford more of the same in budget 2007 and in the years ahead without our having to endure the pain of taking resources from any particular group. We have ongoing opportunities to make major inroads into addressing relative income poverty in the future.

Dr. Jonathan Healy

As Ms Johnston indicated, I will comment on taxation and equity. Most of this presentation is based on two main sources, the first of which is a forthcoming policy statement on taxation and equity by Combat Poverty and the second of which is a new research study on the distributional impact of Ireland's indirect tax system, which we will be launching very soon.

Taxation is clearly one of the main means of redistributing wealth in society and Ireland has, in the past decade, been using a new paradigm of taxation under which there have been low direct taxes, that is, taxes on income. There is greater emphasis on indirect taxes than used to be the case. This is well and good but, unfortunately, indirect taxes are regressive in the sense that they do not take into consideration the ability of the taxpayer to pay. This has poverty implications which have not really been assessed in any great detail in the Irish context before now. This is one of the main reasons we commissioned the research, which we will be publishing very soon.

While there has been much research on direct taxation, less has been done on indirect taxation. Consider the most recent data for 2005 available from the Revenue Commissioners. They concern the top three categories of tax revenue, which represent approximately 95% of all taxes. Indirect tax now tends to account for the top three of the tax revenues, followed by income tax, which amounts to about a third, and corporation tax. Other taxes account for approximately another 5% of the total pot, but there is a very strong emphasis now on indirect tax as the main mode of tax collection. This is quite a different model from that being pursued in the rest of the EU. Most countries collect around a third of their total revenue in the form of indirect tax. Clearly Ireland is collecting substantially more than that.

I want to say something about the context behind the policy statement and the actual study. Ireland, as Ms Johnston and Mr. Walsh have stated already, has a high level of relative income inequality, at 19.4%. Another point to bear in mind is that social welfare rates have certainly increased substantially over the past decade but have not kept in line with wage inflation. As I said, the emphasis on indirect taxes is clawing back much of the social welfare gain to low income households.

I will just run through some of the key findings from that piece of research, which we will be publishing shortly. The main finding is that poor households pay a higher proportion of their incomes in the form of indirect taxes. The graph tries to explain this, and I will run through it quickly for the committee. We are looking at VAT, excise duty and then total indirect taxes. The faint top line shows total indirect taxes. Then income is shown across from the first decile, which represents the poorest households, right through to the richest households in the ninth and tenth deciles. The pattern, as one might expect, is that poor households are spending about 21% of their incomes in the form of indirect taxes. This falls to about 9% of household income for better-off households.

VAT shows a similar pattern. Some 15% of household income being spent on VAT is to be found in the poorest decile. That falls to approximately 7% of total income for the better-off households in the tenth decile. There is a similar pattern for excise duty. It accounts for some 7% of the income of poorer households compared to 2.5% for better-off households. A clear pattern of regressivity emerges from that piece of research.

In terms of some of the study's key recommendations, we should first be clear that the positive elements that already exist should be retained in the indirect tax system. I am talking about two main elements. The first is the non-taxing of food and also children's footwear and clothing; these are obviously very progressive measures and should be retained. In addition, the reduced 13.5% VAT rate on fuel is assisting households which may be vulnerable to fuel poverty. However, another recommendation that needs to be stressed is that further increases in indirect taxes should be avoided on grounds of equity, in terms of trying to make the tax system as progressive as possible. Also, the scope of the indirect tax system to redistribute wealth is quite narrow and limited. Direct taxation through income tax is a much better form of redistribution than indirect tax. The main reason for this is that very few items are bought exclusively by low income as against high income households.

I will touch on a few other recommendations before handing back to Ms Johnston. Another point to remember is that once indirect taxes are raised, whether VAT or excise duty, it is quite difficult to claw them back in successive years. That is another reason to avoid further increases in VAT. I do not have this in the presentation, but it is worth noting that both the reduced and standard rates of indirect tax, are relatively high in Ireland, as compared to other European countries.

A key recommendation to emerge from the study and the policy statement is the ongoing need to review the tax expenditures. It is important here to acknowledge the 2005 review of tax reliefs, which were primarily property related, and the steps announced in last year's budget as regards closing a number of these loopholes and monitoring others. This is emerging as one of the best means of enhancing the progressive nature of the tax system. We have no proposal to change the current policy on income tax which has been shown to be a positive model in promoting employment levels and reducing poverty.

Ms Johnston

This is very much a presentation of three parts, of which this is the third. Members will be familiar with the current national development plan under which substantial resources for economic, social, environmental and regional development have been made available. As one travels around the country one can see the impact, particularly on our roads system. Social inclusion is also one of the four key objectives of the plan. This has involved investment in housing, health, training and education, as well as in the regions through a range of measures, including child care, community and local development.

The Combat Poverty Agency, with the office for social inclusion in the Department of Social and Family Affairs, has provided support for those developing the national development plan — mainly civil servants and State agencies. We have worked very closely with them in targeting expenditure at the areas, groups and people most at risk of poverty. We have produced a guide on how this can be done.

We have great interest in what will be included in the next national development plan which will run from 2007 to 2013. Previously the plan was supported to a significant extent by the European Union but that will no longer be the case. It will now be based on Exchequer moneys only. The Department of Finance is asking for submissions on the content of the next plan which will also run for a seven-year period. We have made a submission, a copy of which is available to members if they wish. We have eight recommendations and I will flag five of them briefly. The first is that social inclusion should continue to be a priority of the plan which has been promoted as being mainly about infrastructural development. Often when we hear about infrastructure, we think of buildings and roads but our argument that social inclusion should be a priority has been accepted. The term "soft infrastructure" is now being used. While the plan may be about infrastructure, it is important that soft infrastructure is integral to it. We argue that this is important for the economic and social development of the State.

The second recommendation is that social inclusion should be what is termed in national development plan speak as a "horizontal principle". This means that all the main actions should be assessed to determine their impact on poverty and should be seen as positive in that regard. If one is planning a transport system, for example, one needs to make sure those who do not have access to cars can still access various facilities. In other words, one makes provision for public transport, as well as for private car use.

The third recommendation is that the national development plan should be complementary to other policies. We are trying, in particular, to ensure the national action plan against poverty and social exclusion is tightly linked to the national development plan. The policy framework is provided for in the national action plan but the resources are delivered through the national development plan. Therefore, they are complementary and support each. This is so-called joined-up government.

The fourth recommendation is that there should be balanced regional development. We did some work recently, the results of which showed that Donegal was the county in which people were at the highest risk of poverty in the State. It is important that the national development plan which delivers resources for hard and soft infrastructure focuses on those areas in which people are most at risk of poverty and that we have balanced regional development. We have made three further recommendations on the delivery of the plan to achieve effectiveness, improved implementation and enhanced application. I will elaborate if members wish.

The final recommendation is to have a common chapter, a North-South component which has been a feature of the previous national development plan. The Northern Ireland plan has a similar component. The recommendation is to encourage North-South development and Border region development. We have been involved in delivering the PEACE and INTERREG programmes in the Border region. We acknowledge the importance of developing the programmes.

We see the need for a support unit to continue to support people who are delivering the plan. We have set out various actions to do with training and monitoring data and research that need to be taken in that regard.

Deputy Stanton

I welcome Ms Johnston, Mr. Jim Walsh and Dr. Jonathan Healy to the meeting. Their condensed presentation has given the committee much food for thought.

Ms Johnston explained that the presentation contains three parts. The first part was a presentation by Mr. Walsh on how the budget redistributed income and this is to be welcomed. It is good to see this happening at last.

I refer to slide No. 3 which showed that 6.8% of the population lives in consistent poverty. Mr. Walsh referred to 275,000 people on low incomes who are deprived of basic necessities. What is the source of that information and is it current information? Will the delegation explain in more detail what is meant by "consistent poverty"?

Mr. Walsh referred to 760,000 people being at risk of poverty, which is the famous RIP, relative income poverty. The question of which measure is used has been discussed on a previous occasion by the committee. The same questions arise as to when and how this data was collected and how current it is. It is a little early yet to see the effects of the budget kicking in and impacting on relative income poverty. How does the delegation envisage the current budget impacting on those two figures?

Mr. Walsh referred to lone parents and large families but he did not refer to persons with disabilities. Would the delegation agree that people with disabilities are a section of the community particularly at risk from poverty or who may live in consistent poverty? I would welcome their views on this issue.

The delegation referred to the Government's national action plan to combat poverty and social exclusion which has a target to eliminate poverty in Ireland by a specific date. Is this date a moveable feast? What is meant by the "elimination of poverty", which are the words used? This is a target which is feasible and possible now for the first time.

Mr. Walsh then gave an analysis of the budget. He referred to the tax welfare simulation model, the first round impact and no behaviour changes. Will he explain what he means by the term "no behaviour changes" as I am not sure of his meaning and the impact these would have if taken into account? I liked his explanation that it was based on real families. Is this a new form of study?

The figures show the distributive impact of the budget which is interesting. Mr. Walsh divided it into two sections, 2003-06 and 1998-2002. Is an overall figure available for the period 1998 to 2006? He referred to a significant reversal in Government policy which was initially designed to help those on high incomes and, more recently, is aimed at those on lower incomes. This may be because there is more money available to do so.

The delegates have stated 30% of resources is going on child provision and that the middle income group benefits the most because the members of that group have more children. They have also stated poverty alleviation is about more than just giving out money. Other issues such as housing, health and education have been mentioned. The delegates are full of praise for what is happening. That is what is needed to help more people avoid the scourge of poverty. Their life chances are improved enormously when the risk of poverty is removed. The delegates have stated it is important to set a new target for the minimum welfare payment. Can they give us an idea of what they would like it to be? They have also spoken about the difference between the target for inflation and the target for wages. There is a sizeable difference between the two.

When a child turns six years, his or her parents lose child supplement, yet they still have to meet before and after-school child care costs. According to the Combat Poverty Agency, those on low wages are doing much better than welfare recipients. We have spoken before about family income supplement. The delegates have stated a large number who should be availing of it are not doing so. We have had many discussions with the Minister on the subject and he has started an advertising campaign to get more to take it up. Why are they are not doing so? It is due to a lack of knowledge, or is there more to it than that? It is a very important payment.

CDA has been frozen and I assume it is the agency's recommendation that it should be defrosted. What would it be worth now if it had not been frozen in 1993? What difference would this make to the category which depends on it most? They seem to have slipped relative to those on low incomes. Is the freezing of CDA one of the reasons for this?

It is indicated in the first presentation that the Government giveth, while in the second it is indicated that the Government taketh away. Indirect taxes are hitting those on low incomes and welfare more than those on high or even medium incomes. Some of the graphs included in the presentation are telling in that respect. Indirect taxation cannot be avoided and people must pay the same amounts regardless of income. A number of very important recommendations have been made by the agency. The delegates have stated the level of indirect taxation is higher in Ireland than in other countries. Is the answer to the problem an increase in welfare payments? We all agree with the argument that direct taxation should not be increased because that approach does not work. However, when indirect taxation is increased, it is difficult to claw it back. The agency recommends no further increases in indirect taxes. Do its representatives suggest there should be a decrease? It is an interesting question, as is the fact that the agency will publish a study on the matter. The witnesses were correct in what they said about soft infrastructure. Can they be more specific and spell out what they mean by the term "soft infrastructure"?

Ms Johnston

We are back to the old chestnuts of consistent poverty and relative income poverty. The figures which assessed 6.8% in consistent poverty were collected by the Central Statistics Office as part of a European survey on income and living conditions, EU SILC. The information was collected in 2004 and reported in 2005. Living on a low income is assessed as living on an income of less than €185 per person per week. The basic necessities are going without a hot meal, a roast or its equivalent, not being able to afford a new coat or shoes or to heat one's house adequately or to pay regular household expenses without going into debt. There are eight basic indicators which have been used since 1987 to determine consistent poverty. Relative income poverty refers to the percentage of people whose incomes are below 50% of median income. The median rate, which is €185 per person per week, was calculated by the CSO in 2004 and reported in 2005 and represents the midpoint of all incomes in the economy.

Members may be interested to note that there has been a great deal of discussion on the relevance of indicators for consistent poverty. The ESRI will publish a report on Monday at noon which sets out its review of the relevance of the indicators and updates them. The Chairman's questions to me on the matter previously will now be answered.

Chairman

After nearly 20 years.

Ms Johnston

We will be able to use the updated indicators subsequently. The relative income poverty measure is used across Europe. It is calculated in each country at a national level rather than at an overall European level. I had the opportunity to attend a presentation by the head of EUROSTAT last week at which it was revealed the agency is considering the development of an additional poverty measure as well as the relative income measure. The new measure will not be quite the same as the consistent poverty indicator but will take into account what has been termed "multi-dimensionality". The measure will include some of the basic indicators we have for consistent poverty as well as housing and participating indicators which measure the extent to which people can participate in society. The measure remains at a pilot stage.

People with disabilities are at a high risk of poverty and should be included in any list. While they may not be as numerous as some of the other groupings, the disabled and their families are one of the groups at greatest risk of poverty, especially where the head of a household is disabled.

The Government's commitment to eliminate poverty is included in its National Anti-poverty Strategy 2002-07. The target is to be met in 2007. To eliminate poverty means to have less than 2% of the population in consistent poverty. At present, the figure in Ireland stands at 6.8% and, therefore, there is a little way still to go.

We are updating the deprivation indicators and the measure will, to some extent, change. We are also revising the national action plan and a consultation process is taking place. We will have a new national action plan that will run from 2006 to 2008. This is part of a European process. Europe has made a commitment to make a decisive impact by 2010.

While nothing has yet been agreed, one might expect the target to be changed to reflect the new measurements. What has been proposed by the ESRI, and also by us, is that it is useful to have a tiered target. Under this, one looks at the level of income poverty, which is important and which can be compared across Europe, the measure of consistent poverty — which we have been using and a revised version of which will be announced on Monday — and a further measure that is anchored in time. One, therefore, considers the previous rate and the absolute changes that have taken place. That kind of approach is of more value because otherwise one argues about the measure rather than about what has been changing in society. The measures merely help one understand what is happening and what needs to be done to improve matters for people living in poverty and on low incomes. That is basically what Mr. Walsh has been trying to do in his analysis, namely, by stating that the situation has been improving, particularly for children, but that some issues remain outstanding for certain households with children and we need to look at the impact on older people, pensions, etc. Mr. Walsh will deal with the analysis of the budget.

Mr. Walsh

On the question of no behaviour change, one could increase welfare rates and people may ask if that might create a disincentive to work or one could change taxes, which might increase the incentive to work. We are not really factoring that — it is a second level of analysis in but I am include it as a caution.

The point of our analysis, and the use of the switch model, is that it involves evidence-based policy-making. One is trying to make transparent the basis on which we progress our policy and the switch model brings out the evidence. Before the budget, we recommend a route and state that if the Minister follows it, doing so will result in a particular outcome and that if he follows another route, there will be a different outcome. That is a real enabler for policy-makers, including members of the committee, because it is transparent. If one does X, one will obtain a particular result. That is what we think is good about the switch model. Not only can one see the effect afterwards, one can also forecast it in advance. It just makes policy-making more rigorous and informed.

Deputy Stanton sought the overall picture in respect of the distributive effect in the period 1998 to 2006. While I do not possess that information, it would be worth having in order to obtain a composite picture. We were trying to show the contrast in direction. Deputy Stanton stated that less money was available in previous periods and that it did not have as much of an impact. In fact, the opposite is true. Twice as much money was spent in the previous five-year period but it had a much less redistributive effect. In the past four years, we spent half of what we spent previously but we are getting a much more redistributive focus because we have changed the policy direction. The interesting question relates not to the amount of money we are spending but to whether our focus is correct. That has been the critical aspect in recent years, even in the budgets of 2003 and 2004 when, although the amount of money available was small, at least the focus was correct. When more money became available, that focus remained in place. What tended to happen in other years was that when more money became available, the focus switched to the tax side. That has not been the case in recent years.

It is important to bear in mind that what is happening is not very radical because all households are in receipt of the same amount. It is not as if groups of people that are better off are suddenly losing huge levels of resources. However, by giving people more or less the same resources, there will be a more progressive impact on lower income households because they are starting from such a low base. As Dr. Healy stated, Ireland has a high level of income inequality and the top 20% of the population has five times the resources of the bottom 20%. That is the starting point and if the same amount of resources is given to people on lower incomes, they will receive a great deal more percentage wise. This is not radical and targeting resources will have a greater impact.

Deputy Stanton highlighted the welfare target. There is wriggle room for policy-makers. One can take a minimalist approach and aim for €6 or one can take a more ambitious approach and pursue a higher figure. Our approach is that we should definitely aim for the higher figure because we have the resources to aspire to it. With regard to the new national action plan and welfare target, we must be ambitious with regard to where we want to go. Our approach is to inquire about the level to which we want to reduce income poverty and then work out the welfare increases required. We are focused on welfare increases and the poverty impact is almost secondary. The agency wants to reduce relative income poverty and welfare payments are the mechanism to facilitate this, but policy is not open to such an approach because there is a great deal of concern about assessing relative poverty targets. People are happier about setting a welfare target, working towards it and allowing discretion over time.

Money is being provided for the early child care supplement but improved access to pre-school education has not been provided. From a child poverty perspective, both are equally important. We want more resources to be given to low income households but we also want children to have a better opportunity to start school with a good foundation. Perhaps that will emerge over time but we would have liked to see a balanced, two-stranded approach emerge, rather than people merely focusing on income without linking it to improved access.

The child category is ages zero to 12 rather than zero to six. The agency will publish a new study at the end of May. The study examined trends and movements in child poverty over an eight-year period and highlighted that the early years between zero and 12 are critical. This needs to be considered further from a child poverty perspective.

The Deputy asked about the value of the CDAs. It is interesting what while the Government is freezing and ignoring them, it is also devaluing them. The Government is negative towards CDAs. If they were indexed, it would be a neutral position but they are not neutral and they are being devalued. Dr. Healy estimates that they have been devalued by approximately 35% and, therefore, the real value, based on inflation, is €22. If one considers a package of resources targeted at a low income household, two thirds of it was provided by the CDA in the early 1990s whereas now it amounts to less than one third. The value of the CDA as a proportion of the adult payments is approximately 10%. The key concern always has been about work disincentives but this is no longer a critical factor because universal payments are more generous.

Some 50,000 children are in receipt of CDAs, while 15,000 to 20,000 children or families are in receipt of family income supplement. The latter provides a narrow slice of the child population with a relatively large of amount of money. However, a significant number of children are not benefiting to the same extent. This poses an interesting challenge because a current policy aspiration is to integrate CDAs and the family income supplement. However, these allowances are as different as chalk and cheese. CDAs cater for a large number of recipients but involve small amounts of money, while the family income supplement provides an average payment of €40 per week to a small number of recipients. Combining them into a streamlined payment will be a major administrative challenge. While benefits may accrue, the easier way to solve matters would be to address CSAs.

Deputy S. Ryan

I apologise for being late. I always look forward to contributions from Ms Johnston, Mr. Walsh and Dr. Healy. I have one question to pose and I wish to make one comment to Dr. Healy. Following analysis of taxation, where do we stand in comparison with our European colleagues on combined direct and indirect taxation?

Dr. Healy

I do not have the exact figures but I can provide an approximate response. Although I do not have data from the 25 states, 35% is the EU average — based on data from 15 member states — for total revenue collected through indirect taxes. Including all 25 states would not change that figure considerably. Ireland collects 50% of revenue through indirect taxes.

Deputy S. Ryan

What happens when direct and indirect taxes are combined?

Dr. Healy

I do not have the figures for that. Corporation taxation, the third component, contributes a larger portion of the tax take in other European countries. Corporation tax in Ireland is lower than in most other European states.

Deputy S. Ryan

The available information and the table provided give the lie to the argument that Ireland is a low tax economy. It is a simple matter to reduce income tax while placing the burden on indirect taxation, of which we have one of the highest rates in Europe. This information is most relevant. When will the information from the survey be available?

Dr. Healy

The study is being finalised and we hope to launch it in the next three to four weeks.

Deputy S. Ryan

That is very interesting. I thank the delegates for their contributions.

Senator Leyden

I commend Ms Johnston, Mr. Walsh and Dr. Healy on their presentation. Am I correct in presuming that the Combat Poverty Agency has responsibility for the local government anti-poverty learning network?

Ms Johnston

We have been responsible for the network for the past six years but it is now being mainstreamed into the Department of the Environment, Heritage and Local Government. That process is being administered by the Institute of Public Administration, although we continue to lend our support.

Senator Leyden

As a former member of the network, I think it should be rolled out to all local authorities because it is worthwhile and councillors and officials need to be aware that many people face poverty throughout the country. There are many forms of poverty in both rural and urban areas.

I was impressed by the delegates' analysis of the budget. For a change, the agency's own budget was not mentioned.

Deputy S. Ryan

Perhaps the agency could introduce a better budget.

Senator Leyden

I commend the Combat Poverty Agency on its preparation for next week's conference, "Learning from Europe on Mainstreaming Social Inclusion in Ireland and Northern Ireland". As a substitute member of the British-Irish Interparliamentary Body, I have visited the North and seen the dramatic deprivation that exists in Belfast. I am delighted that the agency has decided to reach out to develop a united approach to poverty.

I made a submission in advance of the budget on the free fuel scheme, the allowance in respect of which I believe should be further increased because the cost of fuel has risen so dramatically that people now suffer from heat poverty.

I am attending this meeting because I worked on issues of poverty at local level. When I was a member of Roscommon County Council, I repeatedly raised the challenges faced by single parents in the context of raising children in a competitive environment. In addition to budgetary increases in social welfare and child care, more needs to be done from a social point of view. To this end, I have tried to arrange seminars and workshops on child care, women's health and child welfare.

Ms Johnston

Senator Leyden correctly noted that we are working with our partners in Northern Ireland, the Office of the First Minister and Deputy First Minister, on a seminar on the mainstreaming of social inclusion. However, as this forms part of a Europe-wide project, we also have partners in France, Portugal, the Czech Republic and Norway.

Senator Terry

I thank the delegates for their presentations. How would the Combat Poverty Agency address the gap between rich and poor? Before the budget, the gap was growing wider. However, if the process started by budget 2006 continues for the next number of years, will that gap begin to narrow?

The Minister for Finance took measures in the budget to tackle many of the tax incentives available to wealthy people. Although they were doing nothing wrong, in many cases they were abused, particularly in regard to occupational pension schemes. Does the agency welcome those measures and believe they were sufficient? By taking those measures and reducing tax incentives, has the Minister, in turn, diverted the money to those who most need it? As politicians, we want to ensure loopholes which have existed for years are closed. In doing that, there is a saving. Certainly the loophole in respect of occupational pension schemes and the tax incentive has, to some degree, been closed. Will we see a knock-on effect for the less well off as a result of that? If we address the inadequate pensions of the elderly by diverting some of that saving, could we make a difference to them?

In regard to the plan for 2007 to 2013, I strongly support the agency continuing to provide for social inclusion measures. I come from an area in which fantastic work has been done in that regard and needs to continue. Perhaps alterations need to be made because of changes in the environment where people have improved themselves. However, we cannot finish work because it needs to continue. I would be very support of the agency continuing that work.

Ms Johnston

The widening of the gap between rich and poor has been happening because while people's incomes have been improving, including those of people on social welfare — although social welfare rates have been increasing, they have not been increasing at quite the same rate as incomes in the population generally — the incomes of people at the top end, who have been able to avail of the various incentives mentioned, have increased even more. The income distribution has been widening and the median, or the middle, has been rising which is why this gap has been occurring.

What happened in the last budget, where social welfare rates were increased more in line with wage growth and where some of the tax reliefs were curtailed, would seem to suggest the gap is not continuing to widen but the extent to which it will be reduced is not yet known. Mr. Walsh's analysis, which shows some reduction in income poverty, would seem to indicate that is starting to happen but it is too soon to know if that is a trend or a one off.

We welcome the curtailment of the tax reliefs, on which we made a submission. The point we made in regard to most was that some impact assessment should be done on them, particularly to see what social benefit might accrue; to see if they were unnecessary or deadweight so they could be curtailed; to see if they could be adjusted to have a beneficial social impact; or to see if they prove to have some validity in their own right. There should be a more detailed assessment of their value and then decisions should be made about whether to continue them.

Dr. Healy

That ties in nicely with the question of how we should raise revenue. If one suggests there should be no increase in direct or indirect taxes, it is a $64,000 question as to how one can obtain revenue in the first place. Closing off potential loopholes is a very good way of raising revenue. We are not saying they should all be closed off because some have very strong macro-economic or social benefits, or both. When we were forwarding our submission to the Department of Finance, I made a quick calculation and ascertained that if one were to close off the majority of tax reliefs — I refer to the maximum potential — there would be an increase in the tax base of approximately 25%. We are not suggesting all reliefs should be stopped as some are very important and useful. However, some may require further rigorous assessment.

Mr. Walsh

Senator Terry mentioned the pension scheme. We are concerned about the Government's commitment of resources to savings and pensions initiatives. In this regard, SSIAs are costing over €600 million, while the incentives pertaining to the pension scheme are costing approximately €3 billion per annum. We would get a better bang for our investment if it were better targeted. Lower income groups are least likely to avail of pension and savings schemes. We seem to be devoting more resources to those better able to avail of incentives.

Chairman

Last year the agency started to develop a model for an SSIA-type scheme for social welfare recipients and those in the lower income stratum of the population. Did it develop a model or make any recommendation that would benefit those who do not make pension contributions because they do not have enough income to do so? Many of those who are reasonably well off have SSIAs, although the Minister disputes this. Should the system be skewed in favour of social welfare recipients? Has the agency done anything in this regard? Did it submit a proposal to the Government and, if so, what was its response?

Mr. Walsh

We developed a savings incentive scheme for lower income households in conjunction with the Money Advice and Budgeting Service, MABS. The scheme would target lower income households which might be saving small amounts over short periods. We linked up with MABS because we were dealing with persons vulnerable to debt because they had no savings. MABS offers a mechanism for the giving of financial advice to people on low incomes. It is partly a question of whether one has the right products and partly a question of financial capability and understanding. MABS is well equipped in this regard. Therefore, we felt working with it resulted in a good combination.

Our proposal has not received much of an airing. There may be a reluctance on the part of the Government to open up a new mechanism for savings, given that we already have the SSIA scheme. Perhaps there will be an opportunity to introduce our proposed scheme when that scheme comes to an end. Similar schemes, targeted at low income groups, have been piloted in the United Kingdom. We tend to adopt a one-size-fits-all approach, whereas there is a need for more focused intervention. The discussion is now so dominated by the SSIA scheme that we will have to wait until it comes to an end before we can proceed further. We suggest it not be repeated.

Chairman

Does the Combat Poverty Agency, as an independent adviser to the Government, regard this as an important step in policy development and direction and a matter it will pursue, given that SSIAs will mature within the next 12 months?

Mr. Walsh

Yes. It is also linked to a wider project on which we are working with the Financial Regulator on financial exclusion and access to financial services. A new understanding is emerging that, as well as giving people adequate resources on which to live, because of the importance of financial services in products such as bill paying, they also need to be given access to such services in order that they can make best use of their limited resources. Not having access to a suitable savings product or even a bank account represents exclusion and a barrier. If it is not overcome, those on low incomes will need to manage their money in a very informal way without the benefit of the structures, of which the rest of society avails. We cannot imagine managing money without a bank account, yet we expect many on low incomes to do so.

Chairman

One of the financially challenged groups — to use a euphemism — comprises widows, particularly those in the early years of widowhood. They are not at the middle income end but the lower income end of the spectrum. It can be a significant income setback for a person with three or four children to lose an income earning husband or wife. Has the Combat Poverty Agency considered the possibility of extending the household benefits package to widows in the early years of widowhood, even on a pilot basis for three, five or six years? Unless he or she is on a very big income, a widow or widower with young children will often not be in a position to work owing to child care costs, etc.

Has the agency examined the issue of carer poverty? I appreciate the Government has increased payments to carers in recent years. Nevertheless, some are stretched from an income perspective. There is a multiplicity of indicators of poverty, not just income. In that context, I urge the agency to initiate a study. While it is very comprehensive in dealing with matters, it has not focused on carers. Perhaps it sees this area as beyond its remit. I would be very disappointed and shocked if that was the case. For lack of a better term, the 150,000 carers are unsung heroes. Some are feeling the pinch. While the Government has granted a sum of €1,200 to carers for respite care, some only three or four hours sleep a night. We are all advocates for a particular perspective and carers represent mine. Anybody who knows me would say I will probably die with the carers imprint on my forehead; I will die happy if that is how I will be remembered. While the committee has played a major role in highlighting this issue, it has been overlooked by others. I am not telling the agency, which is an independent body, what its business should be as it has a great deal of work to do. However, I urge it to undertake a study of the many issues which need to be considered, including the needs of carers in respect of appliances and other matters.

Deputy Stanton

I support what the Chairman has said. Before this meeting commenced, I was telephoned by a constituent of mine who has a 21 year old son who has been a paraplegic since birth. The woman in question who has been minding her son since he was born receives carer's allowance. Her husband is about to retire on a pension that will represent a reduced income for them, but he will not receive any extra payment in respect of her. She will have to continue to do the same level of work, even though her family's income will have decreased.

Chairman

The amount of work she has to do will increase as her son gets older.

Deputy Stanton

Her circumstances will become more difficult as she and her son get older. I agree with the Chairman that we need to focus on this area.

Chairman

The report produced by the joint committee is a good starting point in that regard. It was not written by experts or consultants but by ordinary people like the members of the committee. It is based on the anecdotal and empirical evidence presented to the committee by 86 real people. I guarantee the representatives of the Combat Poverty Agency that they will not get a better insight into this problem. Mr. Walsh spoke about dealing with real people and using the switch model. The committee's report which is based on the submissions and presentations of over 100 real people is not written in consultant-speak. In fairness, the Government has recognised the importance of this issue, about which I feel strongly.

The prohibition on receiving two social welfare payments in certain circumstances is a huge issue among carers. I refer the delegation to the case of a woman who was working at home, caring for her elderly mother, while her husband worked elsewhere. I am sure Deputies Stanton and Carty could give similar examples. The woman's husband had a low income job, earning less than €500 per week, but that was enough to allow her to receive carer's allowance. When he died, unfortunately, not only was the weekly income of €500 lost, but the income from carer's allowance was also lost. The woman in question has now been reduced to widow's, or surviving spouse's, allowance. We are talking about poverty. Where would one find a greater level of poverty? A woman who was getting €680 per week — her husband's income of €500 and her carer's allowance of €180 — has been reduced to trying to live on approximately €200 per week. The Combat Poverty Agency will not find anywhere on this earth a case where poverty is more prevalent than in the one to which I refer, which is not unique. Deputies Donal Moynihan, Carty, Stanton and Ring and Senator Terry could give similar examples.

I compliment the agency on doing an excellent job in preparing this great presentation. The joint committee is often smothered in paper. It is refreshing, therefore, to receive a presentation that consists of four pages of well presented facts. It is good that we understand everything that has been elucidated by the representatives of the agency. The committee is sometimes snowed under with paper and all sorts of charts, etc., when it receives presentations. It is an achievement that people like the members of the committee are able to understand the agency's presentation. I congratulate the agency on this.

There is a lacuna in the agency's study and I hope it will remedy the problems in that regard. I expect it to have addressed the matter by this time next year. I am delighted that Dr. Jonathan Healy is here. Ms Johnston and Mr. Walsh are always here with us. I hope the agency will set about addressing the problems of carers. Mr. Walsh might say I am a real grouch. I was grouching about something else last year, but that is our job. I suppose I am coming near the end of my time as Chairman of the joint committee. Regardless of whether I am in government or sitting outside with ordinary people, I will not forget about the problems of carers. We in the general public have abused them. That is all I will say.

Deputy Ring

I agree with the Chairman's points about carers. A neighbour of mine from the south, whose husband died last week, contacted me this morning. She has a severely handicapped child and expected to receive a widow's pension while retaining her carer's allowance. She is appalled that she will have to opt for the more beneficial of the two. This is a disgrace. I support the Chairman's call for something to be done. We are only a year away from a general election and he may be the next Minister for Social and Family Affairs. If he is, we will hound him to make the necessary changes.

Deputy Carty

After all the examples Deputy Ring has given in the past four years committee members are in danger of being made redundant.

Chairman

If I were Minister for Social and Family Affairs, carers would be my priority. Everyone else would have to wait while I looked after them. If I were in the shoes of Deputy Ring's neighbour, I would opt for carer's allowance because, at least, then she would receive the household benefits package which also should be made available to widows. I ask the Combat Poverty Agency to use the various models available, in which they have more expertise than ourselves, to examine the financial benefit of the household benefits package in such cases. The package is of significant benefit, although it was not always so.

Deputy Ring

I agree.

Chairman

This is the first meeting of the joint committee that has lasted two hours. I thank our friends Ms Johnston, Mr. Walsh and Dr. Healy who have given us food for thought on taxation and other matters. I am sure they will continue to add top class individuals to their number. The debate is of cross-party interest and the willingness of the delegates to listen to and expand on our various questions helps us to elucidate the issues. The precise manner in which they delivered their presentation was very welcome. Some committee members will see them at the conference next Tuesday. We will probably not be able to remain all day, as they will understand better than most. We look forward to seeing them again in the near future.

The joint committee went into private session at 4.57 p.m. and adjourned at 5 p.m. until 3 p.m. on Wednesday, 12 April 2006.