Text of Presentation to the Joint Oireachtas Committee on Social and Family Affairs

1)    Growing prosperity has not delivered infrastructure, services or wellbeing on the scale required. Download Text of presentation and appendices in pdf

Despite a decade and a half of prosperity Ireland finds itself with serious deficits in infrastructure (e.g. public transport, broadband) and in social services (e.g. education, health, social welfare) which could and should have been addressed effectively by now.  However, the development model followed by policy-makers did not give sufficient priority to addressing these deficits even though the resources to do so were available. That model needs to be adjusted if Irish people are to achieve a real improvement in their wellbeing in the years immediately ahead.

Many good developments have resulted from the economic growth of the Celtic Tiger years.  But they have been paralleled by closely linked negative developments or failures. While per capita income grew dramatically, 15.8 per cent of the population still lives in households with incomes below €11,400 a year for a single person and €26,400 for a household of four. These are low levels of income at which it is difficult for people to live life with dignity.  Yet the proportion of the population in this category is likely to increase as unemployment rises and welfare rates remain below these thresholds.

Likewise, the number of jobs almost doubled over this period and unemployment fell dramatically.  However, the current crisis sees a huge increase in the level of unemployment and a growing recognition that the number of jobs available in Ireland is not sufficient to honour people's right to work.

Linked to this is the fact that the cost of seeing work defined more and more as paid employment only, has resulted in unpaid work (e.g. caring of children, older people and people with disabilities, community building, etc.) becoming a residual category.  Public policy has failed to address effectively the huge challenges posed by these developments in the rapidly changing Ireland of recent decades.

2)    What choices should Government make to ensure better results?

A new approach is needed. A development model that focuses almost exclusively on economic growth as the key to increasing people's wellbeing is doomed to failure. Economic development and social development are complementary and should be given equal priority.  If this had been done during the Celtic Tiger years we would now have the infrastructure and social services required to ensure every person in Ireland could live life with dignity.

Ten key choices Government should make:

1. Recognise that progress means more than increasing GDP and take the required steps to adopt a broader measurement of progress. (In this process measure what matters.)
2. Integrate the income tax and social welfare systems (because the current systems were designed for another age and are inappropriate in the present world).
3. Promote a life-cycle approach to social policy as agreed in Towards 2016. (This involves providing programmes to ensure adequate income, appropriate services and activation for children, people of working age, older people and people with disability so that all can live life with dignity and ensuring Ireland's total tax-take is at the level required to achieve this.)
4. Recognise all work, not just paid employment.
5. Place a strong focus on strengthening participation by all.
6. Put sustainability (economic, environmental and social) at the core of all policy-making.
7. Reclaim our time.
8. Promote a 'whole of health' approach.
9. Broaden the focus of education to ensure it produces fully rounded human beings.
10. Strengthen social capital and civil society.

• Almost a third of all households at risk of poverty are headed by a person WITH a job (31.3% in 2007, up from 29.5% in 2006).  These are the working poor.  Government has failed to take the necessary initiatives to tackle this working poor issue.
• More than half of all those at risk of poverty (55.9%) live in households headed by a person who is outside the labour force (i.e. people who are older or ill, or have a serious disability or are in caring roles).
• Over recent years there has been major progress on benchmarking social welfare payments. In Budget 2007 the lowest social welfare rate was benchmarked at 30% of GAIE.  We were confident that its implementation would lead to further reductions in poverty rates complementing those already achieved and this has happened.
• CORI Justice notes that Government has said it is committed to protecting the most vulnerable in these difficult economic times. If it is to do this credibly then CORI Justice now urges Government to:
• Continue benchmarking the lowest social welfare rates at 30% of gross average industrial earnings.
• Make additional resources available to support households at risk of poverty by targeting further welfare increases at the second adult and the children in these households.
• Take initiatives to tackle the working poor issue, the rising level of unemployment and issues such as food poverty that were not addressed in Budget 2009.

One immediate implication of this analysis is that most weekly social assistance rates paid to single people are €25.17 below the poverty line.

How many have incomes below the poverty line?
Table 3.1.2 presents their key findings showing poverty levels among the Irish population. Using the EU poverty line set at 60 per cent of median income, the findings reveal that in 2007 almost 16 out of every 100 people in Ireland were living in poverty. However, the table also indicates than in recent years the rates of poverty have begun to decrease towards the levels recorded in the mid-1990s (when detailed poverty studies commenced). Data for 1994, 1998, 2001, 2003, 2004, 2005, 2006 and 2007 show that the proportion of the population in poverty has risen from 15.6 per cent in 1994 to peak at 21.9 per cent in 2001 before gradually falling to 15.8 per cent in 2006. These recent decreased in poverty levels are very welcome. They are directly related to the increases in social welfare payments sought by CORI Justice and delivered over recent Budgets.

The fact that there are now just over 685,000 people in Ireland living life on a level of income that is this low must be a major concern. As we have shown earlier (see table 3.1.1) these levels of income are low and those below them clearly face difficulty in achieving what the NAPS described as “a standard of living that is regarded as acceptable by Irish society generally”.

Who are the poor?
In recent years two interchangeable phrases have been used to describe those who are living on incomes below the poverty line, namely those ‘living in poverty’ and those ‘at risk of poverty’. The latter of these terms is the most recent, introduced following a European Council meeting in Laeken in 2001. There it was proposed that those with incomes below the poverty line should be termed as being ‘at risk of poverty’.
The results of the EU-SILC survey provided a breakdown of those below the poverty line. This section reviews those findings, starting with a broad overview in table 3.1.4 and then proceeding to a detailed assessment of the different groups in poverty.

Table 3.1.4 presents figures for the risk of poverty facing people when they are classified by their principal economic status (the main thing that they do). These risk figures represent the proportion of each group that are found to be in receipt of a disposable income that is less than the 60 per cent median income poverty line. The groups within the Irish population that are at highest risk of poverty are the unemployed and those not at work due to illness or a disability. Almost one in four classified as on home duties, mainly women, live with an income below the poverty line. Students, whether living in poor families while completing their secondary education or while attending post-secondary education also have a high poverty rate at 25.1 per cent.

Among those who are retired the risk of poverty is 16.5 per cent. A closer assessment of the risk levels of poverty among the retired reveals that their risk of poverty rate has varied most over the past decade (see table 3.1.6). The 2007 figure represents a 27.6 per cent fall in their poverty risk since 2001 although the 2007 figure is marginally higher than the rate recorded in 2006 (14.8 per cent). The lowest poverty risk figure is recorded for those at work (employees, self-employed, farmers) with 6.6 per cent of this group living below the poverty line.

One obvious conclusion to draw from table 3.1.4 is that the highest risk of poverty is concentrated among those dependent on the social welfare system. As CORI Justice has pointed out for some time, it is essential that adequate welfare payments are provided for these groups so that their poverty is addressed and reduced.

The working poor
The growth in jobs over the years leading up to the collection of this data in 2007 was dramatic. However, it is important to realise that having a job is not, of itself, a guarantee that one lives in a poverty-free household. As table 3.1.4 indicates 6.6 per cent of those at work are living at risk of poverty. Translating this into numbers of people suggests that among Ireland’s workers in 2007 at least 140,000 were at risk of poverty.
This is a remarkable statistic and it is important that policy begin to address this problem. The sustained commitment in recent Budgets to keep those on the minimum wage out of the tax net marks a welcome move in this direction. Similarly, attempts to increase awareness among low income working families of their entitlement to the Family Income Supplement (FIS) are also welcome; although evidence suggests that FIS is experiencing dramatically low take-up and as such has questionable long-term potential. However, the most effective mechanism available within the present system to address the problem of the working poor would be to make tax credits refundable. We will address this proposal later.

Child poverty
One of the most vulnerable groups in any society is children and consequently the issue of child poverty is one that deserves particular attention. Child poverty is measured as the proportion of all children aged 17 years or younger who live in households that have an income below the 60 per cent of median income poverty line.  

In 2008 edition of the Statistical Yearbook indicates that there are approximately 1,050,000m children in Ireland aged less than 18 years (CSO, 2008:11).  Of these, table 3.1.5 indicates that 19 per cent were at risk of poverty. This amounts to approximately 200,000 children. The scale of this statistic is shocking. Given that our children are our future, this finding is not acceptable. Furthermore, the fact that such a large proportion of our children are living below the poverty line has obvious implications for the education system and the success of these children within it.

There is widespread support for increasing child benefit if child poverty is to be eliminated. Child benefit is also a very effective component in any strategy to improve equality and childcare. This remains a key route to tackling child poverty and is of particular benefit to those families on the lowest incomes. CORI Justice believes that child benefit should be substantially increased. We oppose the inclusion of child benefit as part of the parents’ tax assessment. However, we do support the introduction of a refundable tax credit to all families with children irrespective of the labour-force status of parents. This could be achieved very effectively by converting the early childhood supplement into a refundable tax credit and increasing its value.

Older people
According to the Statistical Yearbook 2008 10.8 per cent of the Irish population are aged over 65 years – some 470,000 people (CSO, 2008:11). Earlier data from the 2006 Census also indicated that just over a quarter of this group live alone (CSO, 2007: 36). When poverty is analysed by age group the 2007 figures show that 14.1 per cent of those aged 65 plus live in relative income poverty (see table 3.1.6).

Among all those in poverty, it is the retired that have experienced the greatest volatility in their poverty risk rates. As table 3.1.6 shows in 1994 some 5.9 per cent of this group were classified as poor, by 1998 the figure had risen to 32.9 per cent and in 2001 it peaked at 44.1 per cent. The most recent four years of data mark a decrease in poverty rates albeit with a marginal increase in 2007. While these recent decreases are to be welcomed, it remains a concern that so many of this county’s senior citizens are living on so little.

The Ill /Disabled
As table 3.1.4 showed those not at work due to illness or a disability are one of the two groups at highest risk of poverty with 34.5 per cent of this group classified in this category. Over time the situation of this group has visibly deteriorated with previous poverty studies by the ESRI showing that this group’s risk of poverty has increased rapidly; climbing from 29.5 per cent in 1994 (Whelan et al, 2003:24). This increase in the risk of poverty is an issue of concern. It implies that in 1994 approximately three out of every ten persons who were ill or disabled lived at risk of poverty and that by 2001 this had increased to over six out of every ten (66.5 per cent) before decreasing to just less than four of out every ten in 2007. Consequently, although those not at work due to illness or a disability only account for a small proportion of those in poverty, among themselves their experience of poverty is high.

CORI Justice believes there is an ongoing need for targeted policies to assist this group. These include job creation, retraining (see section on work) and further increases in social welfare supports. There is also a very strong case to be made for introducing a non-means tested cost of disability allowance. This proposal, which has been researched and costed in detail by the National Disability Authority (NDA, 2006) and advocated by Disability Federation of Ireland (DFI), would provide an extra weekly payment of between €10 and €40 to somebody living with a disability (calculated on the basis of the severity of their disability). CORI Justice believes that if people with a disability are to be equal participants in society then the extra costs generated by their disability should not be borne by them alone, but rather society at large should act to level the playing field by covering those extra but ordinary costs. The NESC Strategy 2006 also supported this policy development stating that “the Government strongly consider the case for a separate ‘cost of disability payment’ that, in line with its analysis in the Developmental Welfare State, would be personally tailored and portable across the employment/non-employment divide” (NESC, 2005:168). In their 2008 Pre-Budget Submission (for Budget 2008) DFI anticipate such a scheme would cost €183m per annum (DFI, 2007).

Poverty and education
The 2007 EU-SILC results provide an interesting insight into the relationship between poverty and completed education levels. Table 3.1.7 reports the risk of poverty by completed education level and shows, as might be expected, that the risk of living on a low income is strongly related to low education levels. These figures underscore the relevance of continuing to address the issues of education disadvantage and early-school leaving (see section 3.7). Government education policy should ensure that these high risk groups are reduced. The table also suggests that when targeting anti-poverty initiatives, a large proportion should be aimed at those with low education levels, including those with low levels of literacy (we address the issue of adult literacy in section 3.7).

Poverty by area
The 2007 EU-SILC results show that poverty is more likely to occur in rural areas than urban areas. The risk of poverty in rural Ireland was 4.1 per cent higher than in urban Ireland with at risk rates of 18.4 per cent and 14.3 per cent respectively. Poverty levels were also greater in the BMW (Border, Midland and Western) region than in the Southern and Eastern region with at risk rates of 21 per cent and 13.9 per cent respectively. When comparing the 2007 results with those from 2006 it is interesting to note that the primary drivers of the overall national decrease in poverty (from 17 per cent to 15.8 per cent, see table 3.1.2) were decreases in the poverty levels in rural areas and in the BMW region (CSO, 2008:15). As table 3.1.8 shows this reverses the situation reported in 2006 and is a welcome development.

The poverty gap
As part of the 2001 Laeken indicators the European Union requested that all member countries begin to measure the relative at-risk-of poverty gap. This indicator assesses how far below the poverty line the income of the median (middle) person in poverty is. The size of that difference is calculated as a percentage of the poverty line and therefore represents the gap between the income of the middle person in poverty and the poverty line. The higher the percentage figure gets the greater the poverty gap and the further people are falling beneath the poverty line. As there is a considerable difference between being 2 per cent and 20 per cent below the poverty line this approach is significant.

The EU-SILC results for 2007 calculated that the poverty gap was 17.4 per cent a minor decrease from 2006. However, the published figure does not adjust for the aforementioned SSIA effect; this may alter the reported figure marginally. Over time the gap had decreased from a figure of 21.5 per cent in 2003. In 2007 the poverty gap figure implies that 50 per cent of those in poverty had an equivalised income below 82.6 per cent of the poverty line.

As table 3.1.9 shows, the 2006 and 2007 levels marks the lowest recordings for this measure since the EU-SILC began in 2003. CORI Justice welcomes the fact that this gap is reducing. Given the profile of those who are poor, we expected the recent budgetary increases in welfare payments will continue to cause this gap to reduce. As the depth of poverty is an important issue, we look forward to monitoring the movement of this indicator throughout future editions of the EU-SILC. It is crucial that as part of Ireland’s approach to addressing poverty that we see this figure continue to decline.

The incidence of poverty
Figures detailing the incidence of poverty reveal the proportion of all those in poverty who belong to particular groups in Irish society. Tables 3.1.10 and 3.1.11 report all those below the 60 per cent of median income poverty line classifying them by their principal economic status. The first table examines the population as a whole, including children, while the second table focuses exclusively on adults (using the ILO definition where adults are considered all those aged 16 years and above).

Table 3.1.10 shows that in 2007, the largest group of the population who are poor are children accounting for 25.9 per cent of the total. The second largest group are those working in the home (18.7 per cent). Of all those who are poor, 33.4 per cent are associated with the labour market (classified as in work, unemployed or ill/disabled). The remaining 66 per cent of Ireland’s poor are outside the labour market
Table 3.1.11 offers a more informed assessment of the nature of poverty given that it looks at adults only. This is an important perspective as children depend on adults for their upbringing and support. Irrespective of how policy interventions are structured it is through adults that any attempts to reduce the number of children in poverty must be directed. The calculations show that over one-fifth of Ireland’s adults who have an income below the poverty line are at work. Overall, 45 per cent of adults who are at risk of poverty in Ireland are associated with the labour market (classified as in work, unemployed or ill/disabled).  The remaining 55 per cent of adults who are poor are classified as being outside the labour market.

The most shocking statistic here is that more than one in five adults at risk of poverty is in employment. This group’s plight is consistently ignored. Many of this group do not benefit from Budget changes in welfare or tax. They would be the main beneficiaries of making tax credits refundable; a topic we will address in detail in section 3.2.

Finally, table 3.1.12 examines the composition of poverty by household type. Given that households are taken to be the ‘income receiving units’ (income flows into households who then collectively live off that income) there is an attraction in assessing poverty by household type. CORI Justice welcomed the fact that the CSO have, at our suggestion, begun to publish the EU-SILC poverty data broken down by household category. From a policy formation perspective, having this information is crucial as anti-poverty policy is generally focused on households (households with children, pensioner households, single person households etc). This data shows that in 2007 31.3 per cent of households who were at risk of poverty were headed by somebody who was at work. Almost 50 per cent of households at risk of poverty were found to be outside the labour market.

The Scale of Poverty - Numbers of People
As the three tables in the last section deal only in percentages it is useful to transform these proportions into numbers of people. Earlier, table 3.1.3 identified that in 2007 685,562 people were living below the 60 per cent of median income poverty line. Using this figure, table 3.1.13 presents the number of people in poverty in that year broken down into various categories. Comparable figures are also presented for 2005 and 2006.

The data in table 3.1.13 is particularly useful in the context of framing anti-poverty policy. Groups such as the retired and the ill/disabled, although carrying a high risk of poverty, involve much smaller numbers of people than groups such as adults who work (the working poor), people on home duties and children/students. Over the years of data, it is interesting to track how the numbers living below the poverty line have changed within each group. The primary drivers of the recent poverty reductions have been increasing incomes among those who are on home duties, those who are classified as ill/disabled, the retired, single parent households and children.

Moving to Persistent Poverty
CORI Justice is committed to using the best and most up-to-date data in its ongoing socio-economic analysis of Ireland. We believe that to do so is crucial to the emergence of accurate evidence-based policy formation. It also assists in establishing appropriate and justifiable targeting of state resources.

At the intergovernmental conference in Laeken during 2001, the EU adopted a set of commonly measured indicators to monitor socio-economic progress across all of the member states. Data for these measures is to be collected annually in the EU-SILC survey. The availability of annual data on poverty, incomes and living conditions is an important move. It facilitates a more informed and timely assessment of these issues than was achievable in the past. It will also allow us to track changes more closely over time and to make accurate comparisons across all 27 EU member states.

Among the Laeken indicators is an indicator of persistent poverty. This indicator measures the proportion of those being below the 60 per cent of median income poverty line in the current year and for two of the three previous years. Persistent poverty therefore identifies those who have experienced sustained exposure to poverty which is seen to harm their quality of life seriously and increase their levels of deprivation. To date the EU-SILC survey has not produced any detailed results and breakdowns for this measure (although the survey has run for four full years and it is therefore possible to provide this insight). The CSO have indicated that they intend to publish such a breakdown during 2009 and we encourage them to do so. Once this data becomes available CORI Justice believe that it should be used as the primary basis for setting poverty targets and monitoring changes in poverty status. Existing measures (relative and consistent poverty) should be maintained as secondary indicators. As the persistent poverty indicator will identify the long-term poor, we believe that the CSO should produce comprehensive breakdowns of those in persistent poverty, similar to the approach they currently take with relative income poverty.

However, the available EU-SILC data has given some insight in the likely persistent poverty numbers. The CSO report than in 2007 the persistent poverty rate was 15.4 per cent (2008:50). This figure, while preliminary, is worryingly high. It implies that the vast majority of those living below the poverty line in 2007 have been in poverty for a number of years. Simply, the figure implies that most of Ireland’s poor are long-term poor and that poverty in Ireland is a structural problem which requires focuses policies to address and reduce it.

Poverty and social welfare recipients
CORI Justice has always pointed out the very important role that social welfare plays in addressing poverty. Our continued campaign to benchmark social welfare rates at 30 per cent of Gross Average Industrial Earnings (GAIE) reflects this belief [see section 3.1(c) below]. As part of the EU-SILC results the CSO has provided an interesting insight into the role that social welfare payments play in tackling Ireland’s poverty levels. They have calculated what the levels of poverty are before and after the payment of social welfare benefits.

Table 3.1.14 presents these results and shows that without the social welfare system Ireland’s poverty rate in 2007 would have been 41 per cent. The actual poverty figure (calculated without removing the one-off SSIA effect) of 16.5 per cent reflects the fact that social welfare payments reduced poverty by 24.5 per cent.

Looking at the impact of these payments on poverty over time it is clear that the recent increases in social welfare have yielded noticeable reductions in poverty levels. The small increases in social welfare payments in 2001 are reflected in the smaller effects achieved in that year. Conversely, the larger increases in recent years have delivered greater reductions. This has occurred even as poverty levels before social welfare have increased. CORI Justice has warmly welcomed these social welfare increases and if the government continues to maintain a benchmarked social welfare payment, as agreed under the NAPinclusion, these figures measuring the role of social welfare in reducing poverty will increase.

As social welfare payments do not flow to everybody in the population it is interesting to examine the impact they have on alleviating poverty among certain groups such as older people. Without any social welfare payments 86.2 per cent of all those aged over 65 years in Ireland would be living in poverty. Benefit entitlements reduce the poverty level among this group to 16.6 per cent (CSO, 2008:17) a finding which underscores the importance of these payments to older people.

Table 3.1.4 and the subsequent analysis have shown that many of the groups in Irish society who experienced increases in their poverty levels over the last decade have been dependent on social welfare payments. These include pensioners, the unemployed, lone parents and those who are ill or disabled. Table 3.1.15 presents the results of an analysis of five key welfare recipient groups performed by the ESRI using poverty data for five of the years between 1994 and 2001. These are the years that the Irish economy grew fastest and the core years of the famed ‘Celtic Tiger’ boom. Between 1994 and 2001 all categories experienced large growth in their poverty risk. For example, in 1994 only 5 in every 100 old age pension recipients were in poverty; in 2001 this had increased ten-fold to almost 50 in every 100. The experience of widow’s pension recipients is similar.

The lesson to be learnt from table 3.1.15 centres on the inadequacy of social welfare payments. Over the period covered by these studies CORI Justice repeatedly pointed out how these payments failed to rise in proportion to earnings elsewhere in society. The primary consequence of this was that recipients slipped further and further back and as a consequence more and more fell into poverty. It is clear that adequate levels of social welfare need to be maintained and we outline our proposals for this below.

The above text is an extract from the chapter on Income (Chapter 3.1) in the forthcoming 2009 CORI Socio-Economic Review. Further details on poverty will be provided in a Policy Briefing on Poverty to be published in February 2009. A comprehensive assessment of the most recent poverty and income distribution figures will appear in the Socio-Economic Review to be published in April 2009.

Appendix 2
Core faults in the unpublished Report of the Working Group on Refundable Tax Credits - Prepared by Dr Seán Healy, Director, CORI Justice.
Note supplied to the Joint Committee on Social and Family Affairs
January 31st, 2008
(Please note that the costings referred to here were those discussed in 2001)

Following a meeting of the Joint Oireachtas Committee on Social and Family Affairs with CORI Justice on December 11, 2007, the Committee asked for and received a copy of the draft report of the Working Group on Refundable Tax Credits which had not been completed or published since the Working Group's last meeting which was held in autumn 2002.

The covering letter sent to the Oireachtas Committee by the Department of Finance noted that while the work of the Working Group was completed in 2002, a final report was not agreed by all group members or published.  The Committee's attention was drawn to footnotes 2 and 16 on pages 5 and 29 respectively; the text of these footnotes was not agreed.

As the person who refused to sign off on the text I wish to clarify my reasons for refusing to do so to the Joint Oireachtas Committee. We in CORI Justice had and continue to have major reservations concerning the scope, balance and conclusions of the Group's report.   I deal with these reservations in detail below. We were extremely disappointed in particular that the Report's analysis focused on costing and evaluating a proposal that nobody was making.

We think it is crucial that the issue of refundable tax credits be addressed at this point.  Income disparity is growing in Ireland. Of particular concern is the fact that 30 per cent of all households at risk of poverty in Ireland are headed by a person WITH a job.  Many of these do not benefit from the changes introduced by Government each year in the annual Budget.  This anomaly can be addressed by making tax credits refundable.  In this context we note with interest that in its submission to Government on recent Budgets the Irish Congress of Trade Unions proposed that tax credits be made refundable. 

We would be glad to discuss the issues involved and to provide any assistance required to the Joint Oireachtas Committee on Social and Family Affairs regarding this issue.

The reservations referred to above which I drew to the attention of the Working Group on Refundable Tax Credits are as follows:

• We in CORI Justice are of the view that paragraph 2 of the Summary of the Report, and associated text in chapter 2, is unbalanced with respect to Basic Income and does not reflect the factual position established in the Government's Green Paper on Basic Income (published in 2002).
• With regard to paragraph 3 of the Summary of the Report (and associated text in Chapter 3) which relate to refundable tax credits, we are of the view that the difficulties are exaggerated and the disincentive effects are mere speculation.  In particular we point to the fact that a series of proposals on how to make tax credits refundable submitted by CORI Justice were NOT costed by the Working Group.  The costings provided in the Report are for a proposal that nobody on the Working Group was making.

• Cost of the proposal which I submitted to the Group
• Income distribution effect.

Cost
Early in its work the analysis of Refundable Tax Credits (RTCs) being conducted by the Working Group got bogged down regarding the very feasibility of implementing Refundable Tax Credits, in that, based on the models developed by the secretariat (i.e. Department of Finance), it appeared that it would be very difficult for employers and/or Revenue to implement Refundable Tax Credits.  To address these difficulties I submitted a proposal to the Group on 22 June 2001, whereby recipients could opt to receive Refundable Tax Credits directly from the Department of Social and Family Affairs.  The proposal had two options:

Option 1:    RTCs would be available to all on low pay between the ages of 21 and         65
Option 2:    RTCs would be available also to over 65s.

When submitting the proposal I asked that these two options be costed.

However, it is clear from the draft Report that the cost which is reported throughout the text - i.e. €1.3bn - reflects neither of the two options, but rather assumes that Refundable Tax Credits will be available regardless of age, to all 732,600 tax cases included in Appendix 5.

It appears that this total of 732,600 includes almost 100,000 over 65s who would not be eligible under one of our options.  In addition it includes many young people under 21, who would not be eligible under our options.  We know that there is a large (c. 325,000) youth population aged 16-20 inclusive, who are not eligible.  Legally, many of these can earn less than the hourly national minimum wage and part time working is prevalent in these age groups.  Yet no attempt was made to estimate how many of the 435,000 single people in Appendix 5 are under 21 years of age and outside the scope of the proposal.   Taking these two elements together - the over 65s and the under 21s - it is clear that the cost of the 'core' Refundable Tax Credits proposal, for those aged 21-65, is substantially less than €1.3bn.

Yet, the draft does not attempt to estimate what this cost would be and incorrectly quotes €1.3bn, which is much too high.  I have noted the following instances in the draft report where this occurs: pages 5 and 28.

Income distribution
The central objective of Refundable Tax Credits is to improve income distribution in favour of the low paid. Despite this, the draft report contains no analysis of the income distribution effects of Refundable Tax Credits.

You can see from the above that both of my reservations were well grounded and the footnote I sought to include in the text of the draft Report was fully justified. 

I informed the Working Group that I would gladly withdraw my footnote if these issues were adequately addressed. 

Again, I wish to emphasise that we think it is crucial that the issue of refundable tax credits be addressed at this point. Such a move would have a substantial positive impact on low paid workers. It could be introduced without any changes to the present administrative system.  In practice, people could simply apply to the Revenue Commissioners at the end of the year for a refund of the amount due as they already do to recover medical expenses etc.

We would be glad to discuss the issues involved and to provide any assistance required to the Joint Oireachtas Committee on Social and Family Affairs regarding this issue.

Notes

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1. CSO, EU Survey on Income and Living Conditions (SILC) 2007 published December 3, 2008.
2. When the impact of the once-off SSIA scheme is excluded, cf. SILC 2007, Table 3, p 15.
3. For more information on these indicators see Nolan (2006:171-190).
4. In particular the use of median income ensures that it is possible to eliminate poverty (a rate of 0 per cent), a feature that was theoretically impossible when poverty lines were calculated using mean income.
5. For example in 2003 the CSO reported that the 60 per cent median income line was €14 higher than the 50 per cent mean income line. In some other European countries the opposite situation was found.
6. We note that the CSO data shows the unequal distribution of the SSIA scheme with households further up the income distribution realising cash gains (mainly via government top-up payments) well in excess of those lower down the income distribution. CORI Justice condemned the inequitable nature of this scheme when it was first announced and the CSO evidence underscores our standpoint on this issue.
7. Including the SSIA effect the median income in 2007 equalled €380.05 (CSO, 2008:8).
8. The calculation assumes a 4 per cent increase in 2008 (from ESRI Medium-Term Review 2008:83) and 0 per cent in 2009.
9. For example the poverty line for a household with 2 adults and 1 child would be calculated as €229.47 + €151.45 + €75.73 = €456.65.
10. See table 3.1.14 below for further analysis of this point.
11. See table 3.1.13.
12. In previous years the CSO have published the Child Poverty figure using the International Labour Office (ILO) classification of a child, aged less than 16 years. The most recent report has changed to report child poverty for all children aged less than 18 years. This classification has more policy relevance and is a welcome reform.
13. This figure is calculated using table 1.5 of the Statistical Yearbook and assumed that two-fifths of those classified in the age group 15-19 years are aged between 18 and 19 years.
14. A distinction is not made between those are temporally unable to work due to illness and those permanently outside the labour market due to their illness or disability.
15. Following Collins (2006:141, 147) we assumed that those classified as ill/disabled are likely to want to participate in the labour market. However, we note that the entirety of this group is unlikely to join.
16. Those on home duties, students and school attendees, retired plus a proportion of the ill and disabled.