Benchmarking Social Welfare should begin with Budget 2023

The Oireachtas Select Committee for Budgetary Oversight recently published its report on Indexation of the Taxation and Social Protection System recommending a system that would provide greater clarity for the public, together with some assurance for those on fixed incomes that the system will respond to external factors such as the current cost of living crisis to ensure that there is an adequate safety net for those who need it. Social Justice Ireland welcomes this Report and many of its recommendations. We have been advocating for a move towards benchmarking the social welfare system for some time now and hope, with the support of the Committee in its favour, that Budget 2023 will begin this process.

 

Committee Recommendations

The Committee's Report makes a series of recommendations, many of which were proposed by Social Justice Ireland in our presentation to the Committee in January this year. Among these recommendations, the Committee:

• is of the opinion that indexation can provide greater certainty and planning for fixed and low-income household as welfare changes and taxation levels can be known in advance.
• is of the opinion that the establishment of an indexation system has potential for improved transparency around the process of identifying and setting the annual increases to welfare rates and other parameters selected for indexation.
• believes that separately benchmarking each indexed parameter is necessary to develop a properly functioning indexation system in order to achieve policy goals.
• notes that benchmarking and indexation can aid in providing an evidence-based analysis in setting welfare and taxation payments.
• notes the additional measures which may be used by Government to alleviate cost of living issues for the public, namely, greater spending on universal basic services such as affordable childcare, housing, public transport etc. However, the Committee shares the stakeholder view that additional spending on such services should be done in tandem with a system of indexation. (emphasis added)
• notes the additional costs which may result from an indexation system but acknowledges the potential positive impact such a system may have on reducing poverty rates, particularly among social welfare recipients.
• notes the general consensus that average weekly earnings are the most appropriate measure from which to benchmark payments.
• notes the benefits of indexing to either price or wage growth, however, the committee acknowledges the general stakeholder preference for indexation linked to wage growth in the majority of circumstances as this has the potential to have the greatest impact on limiting the growth in income inequality.
• recommends that the establishment of a taxation and welfare system of indexation is considered and debated by the Dáil to identify the priorities of the legislature in this regard.
• welcomes the recent acknowledgement by Government of the need to examine the benchmarking and indexation of a wider range of parameters, beyond the State pension and income tax bands. The Committee recommends that any such examination would include the consultation with, and inputs of, a wide range of societal as well as economic stakeholders.

These recommendations address the need for appropriate benchmarking, while also acknowledging the challenges involved with a transition to a fairer, more equitable system.

Social Justice Ireland's Position

In our Opening Statement to the Committee, Social Justice Ireland set out the policy context and a clear rationale for benchmarking and indexation of welfare payments, set initially at 27.5 per cent of Average Weekly Earnings (the equivalent of the Government's own former benchmark of 30 per cent of Gross Average Industrial Earnings).

Social Justice Ireland proposed a €20 increase in core social welfare payments in our pre-Budget 2023 policy briefing, Budget Choices, which would set Government on the correct path to benchmark social welfare rates to 27.5 per cent average weekly earnings over a two-year period, which was the standard set in 2007. We further called on Government to commit to reaching this benchmark by 2024, and outline what steps will be taken to meet it.

In 2022, the updated value of 27.5 per cent of average weekly earnings equals €234.60, a weekly shortfall of €26.60 between the minimum social welfare rates being paid (€208) and this threshold. Should wages continue to rise during 2022 this gap will increase further.

Once the benchmark of 27.5 per cent of average weekly earnings has been met Government should establish a process of indexation of minimum social welfare payments to ensure recipients do not fall behind the rest of society. Benchmarking core social welfare rates to 27.5 per cent of average weekly earnings would provide a stable and adequate income for welfare dependent individuals while not undermining labour market participation incentives.

By moving this benchmark gradually towards a target of 30 per cent of average earnings certainty would be given to households on fixed incomes, Government would have budgetary certainty, and issues regarding one off impacts of high costs of utilities for example could be addressed in a more targeted manner.

For more detail on benchmarking and indexation of the social welfare system please see our briefing on social welfare rates in advance of Budget 2022.