Social welfare payments provide the vital safety net for those who cannot work. The welfare system plays a major role in providing a more equal distribution of income than the market would deliver, and in preventing individuals and families falling below the poverty line.
Ireland’s social welfare system has proven a more important lever than the tax system for redistributing income from the rich to the poor. With the number of unemployed people falling steadily, pressure on the welfare budget is easing.
However, even in a period of low inflation, significant resources will be needed over the next five years just to maintain the real value of welfare payments. As the number of pensioners continues to rise, the State pension bill will go up. The Central Statistics Office’s population projections suggest a rise of 17-18 per cent over the next five years in the number of people over 65.
The Department of Finance presentation of the budget available for spending by the next government (the “fiscal space”) allowed for indexation of tax bands. However, they made no corresponding provision for indexation of welfare payments over the period to 2021.
It is not that the department does not anticipate that this will happen, or should happen, it is just the standard accounting approach that they adopt.
So it is useful to look at the different manifestos of the political parties to see to what extent they have made provision for maintaining the real value of welfare payments. Of course, different parties may prefer to prioritise other areas, either tax or spending, in the budgets underlying their manifestos.
It is not always straightforward to analyse a manifesto, and it may be that there are assumptions or plans spelled out or hidden in other policy documents that should be taken into account. Here I consider the allocation to welfare made in the manifestos of four parties: Fine Gael, Labour, Fianna Fáil and Sinn Féin.
In the Fine Gael, Labour and Sinn Féin manifestos there is a specific budget for social welfare, while in the Fianna Fáíl manifesto no budget is specified but a number of commitments are made to index certain benefits.
On a crude calculation it could require the best part of €2 billion to maintain the real value of welfare payments for five years. The highest planned allocation for welfare of €1.7 billion is set out in the Labour manifesto. Fine Gael allocates around €1.4 billion, and Sinn Féin €900 million.
Smallest allocation
The Labour commitment would go close to indexation, and it makes specific commitments on pensions and child benefit which amount to indexation. The Fine Gael allocation would fall short of providing for indexation of all benefits, but it has a commitment to index pensions. It also provides for an enhanced working family payment, which would leave less funds for indexing other benefits. Fianna Fáil does not give details of any budget allocation, but it does commit to indexing pensions. Also it makes provision for an increase in child benefit and working age payments, though at a rate below the likely rate of inflation.
Sinn Féin has the smallest allocation for social welfare, only half of what would probably be needed to maintain the real value of welfare payments. Also it makes commitments to restore a number of previous schemes, including restoring the rate for jobseekers’ benefit for those under 26 and indexing the disability allowance.
When the likely cost of these commitments is taken into account there will be a very small budget left to increase other welfare benefits, including pensions.
This analysis suggests that the manifestos of the four main parties have each underprovided to a greater or lesser degree for the cost of maintaining the real value of welfare payments.
This may reflect a genuine policy choice to allocate resources elsewhere. However, I suspect that whoever is in government will end up providing what is needed to index welfare payments over the coming five years. To do any less would likely lead to a more uneven distribution of income and an increase in families in poverty.
A failure to adequately price in the additional costs facing the welfare system means other manifesto “priorities” may have to be adjusted to enable the real value of these payments to be maintained and to provide for an ageing population.
