Notes on the Front

Conventional commentary would have us believe that people don’t want to pay higher tax in order to receive more benefits.  But then there’s this interesting survey undertaken by the Department of Social Protection that has remained below the radar:  A Survey of Class S PRSI Contributors.  This seems to undermine the conventional group-think.  In this survey the self-employed (Class S) were asked if they would be willing to pay higher PRSI in exchange for more benefits.  The overwhelming response was yes.

The self-employed pay a 4 percent PRSI rate but they don’t receive all the benefits that an employee does.  The big exemptions have traditionally been unemployment benefit, short and long-term illness benefit, work-related injuries benefit and full-time carer’s benefit, though recent reforms by the government will result in the self-employed accessing invalidity pension. The survey found:

·     Self-employed rated cover for long-term illness, short-term illness and unemployment as the most important extra benefits to them. 82 percent ranked long-term illness in their top three of preferred additional benefits.

·     An overwhelming majority of respondents – 88% – said they would be willing to pay a higher headline rate of PRSI in return for at least one additional social insurance benefit. 

·     There are low levels of coverage from private insurance, such as income continuance cover. Just 28 percent are covered for long-term illness and only 2 percent for unemployment.

So, 88 percent would be willing to pay more PRSI in exchange for benefits that would provide some security if they became unemployed or ill.  This shouldn’t be surprising; survey after survey shows that people rank financial and social security very highly. It is an even more provocative finding given that a substantial number of self-employed, including bogus self-employed, are low to average earners.   So much for alleged tax-aversion (‘tax’ is, of course, the wrong word – in the self-employed context PRSI is an insurance programme). 

People are rightly suspicious that an increase in taxes will make no significant impact on their lives except leave them with less disposable income.  During the recession-austerity period tax increases were used to balance the budget and subsidise bank creditors so this scepticism is well-founded. However, when people see a direct link between tax-paid and benefit-received, attitudes changes.

Here’s an important lesson for progressives:  social insurance is key to this link.  Unlike general taxation where the revenue goes into a big central pot, the PRSI that I pay entitles me to concrete and transparent benefits:  old age pension, unemployment benefit, illness benefit, etc.  In other words, I can directly see the link between what I pay and what I get. For example, the Tax Strategy Group estimates that extending social insurance for the self-employed to cover for long-term illness and injuries would require an additional 1.5 percent.

This is what makes social insurance a powerful tool to mobilise people behind a higher-tax regime, and instil confidence in the social state – that is, the state’s ability to promote people’s living standards.  Would employees, for instance, be willing to pay additional PRSI, co-funded by employer contributions, to obtain a pay-related and guaranteed pension payment, on top of the current flat-rate pension payment?  Or free / low-cost access to GPs, subsidised prescription medicine, dental and optical services – again, all co-funded by employers? 

The Government’s proposed merging of USC and PRSI could provide opportunities to transform our current welfare system (i.e. ‘welfare for the poor’) into a real and effective system of social protection – one that protects all workers, whether employees or own-account.  Whether they can or will seize such opportunities will be explored in a further blog post.

If the self-employed are anything to go by, people value security and protection.  And as long as they are guaranteed there will be a concrete and identifiable result they are willing to pay more insurance-based tax.