Notes on the Front

Paedar Kirby is one of the leading proponents of the theory of the ‘competition state’. The concept is that the state subordinates the welfare needs of it citizens in favour of the profitability of the corporate sector – especially multi-national capital). For instance, we can’t raise tax on profits or capital because that would inhibit ‘competitiveness’. Similarly, the state can’t intervene in the social partnership process to substantially increase low wages because that would inhibit – what else – ‘competitiveness.’ Now I’m a bit hesitant about this theory – mostly because I don’t want to cede the concept of competitiveness to the Right – but it does provide valuable insight into the broad economic thrust of government policy.

So let’s assume we have a competition state right here on this little island. What can we say about it? Well, if it is a competition state, it is an incredibly incompetent one. For what does it say about a mix of tax, welfare and social protection policies whereby it is more economically rational not to work than it is to take up a job?

The European Anti-Poverty Network and OPEN published a comprehensive study entitled, ‘Out of the Traps’, studying the impact of poverty traps on people moving from welfare into work. What they discovered was a sobering antidote to the Government’s insistence that the best way for people to pull themselves out poverty is to get a job:

• A lone parent with one child on social welfare can drop 42% of her/his net income by moving to a 40 hour minimum wage job
• A couple with two children going from Unemployment Benefit to a 35-hour minimum wage job would experience a 25% drop in net income
• A couple with three children would lose a third of their income taking up a 40-hour week on the minimum wage

Now this doesn’t arise because those on social welfare are living the good life (some neo-liberals would suggest slashing social welfare rates to ‘incentivise’ the recipients; and no doubt there are some neo-liberals who believe a ‘war on poverty’ is about shooting poor people). Almost all social welfare rates (with primarily the exception of old age benefit) are below the relative poverty threshold. The following table is produced from ESRI’s study on Child Poverty and Child Income Supports.

Ireland not only pays out very little under its social welfare programmes, it falls well behind other EU countries (and lest one thinks that high benefit rates are a disincentive to work, it should be noted that Denmark has a similar unemployment rate to Ireland).

The EAPN and OPEN argue that the problems lie in the horrible complexity of the social welfare system and its sometimes regressive interaction with the tax system. For instance, take an unemployed couple with a child: if a spouse lands a job paying the average industrial wage they would be right to expect a substantial increase in their living standards – the gross wage would be more than twice the basic assistance payment. However, take away rent supplement, Back to School Allowance, Fuel Allowance and other social supports, and the couple’s net income from the job leaves them only €57 a week better off. In other words, the working spouse receives only €1.42 per hour more at work than on the dole.

But it can get much weirder.

If anyone can rationalise this, please do so. If a lone parent works a full-time average wage job they are no better off than someone taking up a part-time minimum wage job. And if any lone parent thinks that, by working a minimum wage job full-time, they will earn more than if they only work the job part-time, they will have a rude awakening. They will actually be losing money – lots of money – which makes remaining on social welfare economically rational.

No one planned our social welfare system this way. Rather it emerged out of a plethora of well-meaning schemes designed to assist people on low incomes. The problem is that when all these well-meaning programmes come together, they can spell disaster for people’s living standards if they take up work. The report identifies a number of detailed reforms that could be introduced to help modify the complexities.

For instance, not only does the Irish system have an over-reliance on means-testing, each social welfare programme has its own means-test (sometimes more than one) with difference income assessments. A single means-test – a type of passport to a range of benefits – could remove considerable complexity. This is just one example of the reforms the authors put forward.

No doubt these reforms would have a beneficial impact on the situation, but the problem is that it is very complex area and not given to sexy sound-bites for the 6:00 news. And since people on low incomes don’t feature much in the Sunday newspaper supplements, it is probably never going to get very far on the agenda.

In any event, even with these reforms, it is questionable to what degree people who move into average income work will benefit. They may work better at lower wage levels where people may only work part-time or move in and out of the workforce with above-average frequency.

We may well have to look at the whole issue of tax and social welfare integration in a new and more radical light – and create programmes that don’t just benefit those on low-incomes, but spread the benefit to a broader range of people throughout society, so that they may buy into these reforms. In other words, when it comes to addressing the issues confronting people on low incomes, we will have to build a programme that, at the same time, addresses the problems faced by average and above-average income groups.

That is the ‘competent’ way of creating alliances for change.

NOTE:  The second table is based on 2005 data, not 2004.  EAPN and OPEN have updated these examples to 2006 on their website.