FRANTIC pre Budget discussions are under way on two sets of policy measures aimed at attacking unemployment. One involves reform of aspects of a tax and social welfare system which makes it hardly worthwhile for many people to work and expensive for employers to hire staff. The other includes measures which would discriminate in favour of the long term unemployed by giving them a route back into the jobs market.
The question now is whether the Government can agree a substantive package or whether squabbling and turf wars between the parties will scupper any useful reforms? The extent of the unemployment crisis is not clearly defined. Contradictory live register and labour force figures introduce uncertainty, but the increase in the live register in recent months has certainly raised the stakes for the Budget policymakers.
The tax and social welfare elements are likely to be the easier to agree. The Government has some money to spend on taxation measures probably £150 million to £200 million.
It is now a question of dividing this limited sum of money between the many areas where reductions are needed. The Government can choose to spread its largesse widely to the benefit of all taxpayers - the politically attractive route - or introduce some specific measures aimed directly at the lower paid.
One change which is on the cards is an increase in the £50 PRSI allowance introduced last year, meaning for those paying full PRSI the first £50 of income is disregarded for the purpose of calculating social insurance. This could be increased to £75 or more in the Budget, meeting one of the goals of the proposals put forward by the minister for Enterprise and Employment, Richard Bruton. Whether personal or PAYE allowance will be increased ahead of inflation to exempt more low paid employees from the income tax net remains to be seen. The choice for the Government is whether to direct its tax fire at lower income carriers, or to spread the benefits.
Widening the standard rate income tax band, for example has been a feature of each recent Budget and will continue this year. It is a measure which benefits, marginally, the majority of taxpayers and also helps single workers on relatively low incomes who face a marginal income tax rate of 48 per cent. Widening the standard band means no gain to the lowest earners.
Measures such as raising the PRSI allowance would have a much more direct impact on the lower paid, but are of less benefit proportionately to those on higher wages.
Richard Bruton's proposals also place a heavy emphasis on reducing the other side of the tax wedge - the cost to employers. Here there are some ideological differences in the Cabinet between Mr Bruton's view that over a period of years employers' payroll taxes should be reduced to British levels and Mr De Rossa's preference for the restriction of relief to specific low wage industries.
The Government will look at reducing the employers' lower PRSI rate of 91 per cent. It will also examine increasing the £12,000 income level to which this lower rate applies. Finally, the main 12.2 per cent employers' PRSI rate will be examined - a cut here would be a costly option.
The Bruton proposals also call for social welfare reforms, an area where Mr De Rossa is also understood to have tabled proposals. Here some move is likely towards allowing people moving from the live register and Unto employment to retain benefits such as medical cards (which are lost for a family at an income of over £10,000) and rent and mortgage subsidies for specified periods. This, together with tax reform, would help address the problem that the gain from employment for a family earning £8,000 to £11,000 can be as little as £25 per week.
The Budget is also likely to address the area of families with children. Last year's Budget announced a big increase in child benefit. The Government has a commitment to move towards a basic income support which would integrate all existing payments related to children currently into a general payment to all low to middle income families regardless of whether they are in work or not.
Mr Bruton proposes that unemployed pimple taking jobs should be allowed retain child dependent allowance for three months after entering the workforce. This would allow them to apply and be granted family income support, which tops up the Income of working low wage families.
He has also proposed a pilot scheme for topping up the income of low wage single people and couples without children. The proposal to restrict the level of unemployment assistance to 18 year old and 19 year old entrants to the jobs market is unlikely given political sensitivities, to be agreed quickly.
The other side of the Budgetary discussions is whether there should be new measures which discriminate in favour of the long term unemployed. Richard Bruton's plan is for a special £80 subsidy paid directly to employers who hire someone who has been on the live register for more than two years. This would differ from previous schemes in that the strategy would not so much create new jobs and hope the unemployed get some of them, as to get employers to positively discriminate in favour of the long term jobless.
The main obstacle to the inclusion of tax reform measures in the Budget is, of course, cost. As usual the Department of Finance is casting a cold eye on the cost of the proposals. The attitude of the three party leaders will thus be crucial in determining which proposals fly and which do not.
One Budget can, of course, only do a limited amount to tackle unemployment. This increases the importance of adopting a long term, year on year approach to Budgeting, as argued here before and also supported this week by the Progressive Democrats. The Current Government has, at most, one more Budget after this month's, but even setting out a two year plan on tax and, PRSI reform would be welcome. It is time to repudiate the one year at a time Budgetary scramble.
