The recent report of the think tank Tasc on economic inequality in Ireland has generated a good deal of response, not least an editorial in this newspaper.
The impression has been given that economic inequality in Ireland is more grievous than in any other developed country; that the current Government is indifferent to inequality and that inequality is, in the words of the Irish Times editorial writer, a result of “the political choices we have made”.
These assertions are factually misleading and politically repugnant.
I am a member of the Labour Party, a party which regards tackling inequality as part of its raison d’être. Far from being indifferent to inequality, we regard the generation and distribution of wealth so as to tackle inequality as one of the principal functions and duties of government. That duty is all the more pressing in times of economic downturn such as we have experienced in recent years.
Tasc makes the point that, if you strip out the effects of taxation and welfare spending, Ireland is a pretty unequal place. This is for a whole variety of reasons, some of them amenable to action by the State – education and training for example – and some of them more intractable. But the authors of the report clearly acknowledge, and this seems to have got lost in much of the subsequent debate, that when tax and welfare spending is factored in, income inequality in Ireland comes in around the EU average. Actually it is below the EU average, lower than the United Kingdom and therefore comparisons with the United States are nonsensical.
The front page report on the Tasc report in this newspaper carried the headline “Ireland heading to US level of income inequality, study finds”. This headline was a reference to the measurement of income distribution before the impact of Government intervention through the tax and transfer system – so-called market inequality.
However, what matters at the end of the day is a person’s disposable income and while the market generates a quite unequal distribution in Ireland – as markets everywhere have a tendency to – the redistributive impact of the Irish tax and welfare system is quite remarkable.
Ireland has the most progressive income tax and welfare system in Europe in terms of its impact on the distribution of income and it has been Government policy to retain this, even in the most difficult economic circumstances, and in the teeth of opposition by some who would happily see it dismantled.
Distinguished economists
Two distinguished economists made this point succinctly at a meeting of the Oireachtas social protection committee just a few weeks ago. Prof John FitzGerald told the committee: “The overall impact of Government policy on expenditure and taxation of successive governments has had a progressive impact.”
Dr Donal de Buitléir stated plainly: “The fact is that we have the most progressive tax and transfer system in the OECD both absolutely and proportionately.”
The economic crisis had a devastating impact on employment in Ireland which declined by over 300,000, while unemployment increased from under 5 per cent to over 15 per cent. With thousands of people losing well-paid jobs and joining the ranks of the unemployed it is hardly surprising that measures of market inequality deteriorated sharply.
This is well documented and must be acknowledged. But what must also be acknowledged was the impact of the policy response which generated a fairer distribution of disposable income than before the crisis. This outcome was not an accident; it was the result of deliberate Government policy which targeted the protection of the welfare budget even when drastic adjustments in public spending were necessary to bring our public finances to a place of safety. This was a unique response compared to other so-called crisis countries in the European Union, where welfare spending increases were less pronounced despite a more dramatic decline in employment than in Ireland. But Government policy has not just focused on protecting the welfare system. The single greatest cause of inequality is unemployment. That is why the Government has put job creation and job retention at the centre of economic policy. The Government’s action plan for jobs, launched in 2012, when unemployment was at its worst, targeted an increase in employment of 100,000 by next year with a target of a return to full employment by 2020. By the third quarter of last year, an additional 80,000 new jobs had been created and with employment forecast to increase by at least 40,000 this year we will have exceeded our targets, one year ahead of schedule. This better performance has prompted a more ambitious target of a return to full employment and the restoration of all the jobs lost during the crisis by 2018.
Creating jobs
Of course, creating jobs is not in itself enough. We also need to ensure that people who are currently unemployed are given every support in their efforts to get back into the workforce. That is the purpose of “pathways to work” which has been driven by Tánaiste Joan Burton. We also need to ensure people in jobs are fairly remunerated and we have set up the Low Pay Commission to deal with that issue.
Tackling inequality and poverty is complex. We need to create more wealth, redistribute existing, and indeed future, wealth and deal with the multiple structural issues which cause poverty in the first instance. The traditional left, (perhaps including Tasc) has tended to emphasise redistribution. The traditional right has majored on wealth creation. As a social democrat I recognise the need to do both and, crucially, to deal with issues such as education and the culture of social welfare dependency which are at the root of inequality.
This is the real political choice which Labour in Government has made and we stand fully over it.
Joanna Tuffy is chairwoman of the Oireachtas Committee on Education and Social Protection