Budget 2023 must be a REAL Cost of Living Budget

Uncertainty dominates Ireland’s social and economic outlook as Government frames Budget 2023. Choices being made must respond to the current cost of living challenges while recognising uncertainties arising from Covid-19 and the geopolitical instability from Russia’s invasion of Ukraine.

 

The current rise in the cost of living could well be combined with extensive inflation and recession which would have serious implications for Government Budgets in the next few years.  These developments could well coincide with a reduction in the windfall corporate taxes Ireland has been benefitting from in recent years. 

 

Consequently, Social Justice Ireland believes Budget 2023 should be guided by one core principal, that the measures adopted prioritise the protection of the poorest in Irish society.

 

The Budget should also signal the measures Government will adopt during 2023 should there be a sudden and deep economic recession. We believe this should be reflected in a Budget 2023 commitment to pursue a targeted economic stimulus where the state commits to borrowing additional resources and uses these to invest in long-term infrastructural projects focused on social housing and measures to accelerate Ireland achieving our climate change targets. 

While Ireland has an already high national debt and borrowing costs are currently increasing, the cost of funding these measures remains historically low and well below the return these projects will provide to the state across their lifetime. State borrowing for prudent investment makes sense at all times, including if there is a sudden economic contraction.

Ireland is likely to be poorer in the period immediately ahead.  Many will be impacted by this changing reality. Some people will continue to thrive but others will find their income is not sufficient to maintain a minimum standard of living.

Major and difficult choices lie ahead.  If Government gets these choices wrong, a great many vulnerable people in Ireland could find their already precarious situation worsened substantially.

Poverty

581,334 people in Ireland are living in poverty, of which 163,936 are children. A closer look shows that more than 90,000 of these have jobs.

Looking back over the past three decades since national poverty assessments commenced we see that poverty rates have fluctuated. In general, decreases have occurred in periods where national budgets have given greater attention to improving minimum welfare payments or prioritising welfare dependent households or setting the Pandemic Unemployment Payment rate (PUP) above welfare rates . 

Conversely, poverty has increased in periods where welfare payments were less of a policy priority and therefore gaps opened between those benefiting from tax and earnings changes and those households dependent on support from the social transfer system.   Without COVID-19 income supports, for example, the at risk of poverty rate would have been almost 20%, one in five people in Ireland. 

The sheer scale of the numbers of people living in poverty is worrying, particularly when we consider the sudden and persistent rise in the cost of living which impacts most seriously on those with the lowest incomes - the working poor, single parent households, people who are unemployed and people with long standing illness or disabilities. 

Welfare & the Rising Cost of Living

The standard of living that social welfare payments can provide is dramatically reduced when the cost of living rises. The impact of inflation is greatest for those households in the bottom twenty percent of the income distribution.  They spend a greater proportion of their income, compared to better off households, they are more exposed to price increases; they also spend a greater proportion of their income on food and energy.

A recent study from Social Justice Ireland highlights how significantly housing costs impact on the living standards of renters and in particular low income families who live in accommodation provided by local authorities or receive social housing supports.  Post housing costs, one in every two of these low income households have an income below the poverty line; this compares to one in five for the whole population and one in twelve for households who are owner occupiers.

Budget 2023 must protect those in low and middle-income households who are most seriously impacted by the current crisis. If Government fails to do this it will have failed in its most fundamental obligation—to protect those who are poor and deprived. 

Challenges and Resources

But this is not the whole story.  Additional resources will be required on other fronts as well - to provide more social housing, to tackle the climate crisis, to cover the cost of rising public sector pay, to develop comprehensive public transport and really effective childcare and to promote the just transition that is essential if Ireland is to avoid serious divisions in the coming decade. 

Each of these is focused on addressing challenges that existed prior to Covid’s arrival. They will require additional resources, perhaps even more than  currently proposed, if these required initiatives are to achieve their goals. Social Justice Ireland has, for example, calculated that major additional investment beyond what’s included in the housing plan will be necessary if we’re to really get close to achieving housing for all as set out in the goals of that plan.

The choices Government makes must be focused on building a future that is prosperous, sustainable and fair. They should be socially progressive, promote wellbeing and be focused on building a future where nobody is left behind. 

It is vital that the fiscal stance adopted by Ireland at this challenging moment protects those on low and middle incomes, addresses the other major challenges we are currently facing and provides the resources necessary to reduce division and improve wellbeing in Irish society. 

Taxation

Budget 2023 also offers an opportunity for Government to reform some aspects of the current taxation system in the interest of enhancing fairness and sustainability. It is an opportunity to make some overdue changes which will also provide additional revenue. Tackling tax expenditures is one such area.  Introducing a site value tax is another.  Securing a minimum effective corporate tax rate is a third.  While Ireland has a progressive income tax system it has some way to go before the overall system is fair.

A New Social Contract

Proceeding as we have done in recent years will not address the challenges Ireland faces, challenges that existed before the arrival of COVID-19.  A new Social Contract is needed. This new Social Contract should be focused on building a sustainable and resilient economy that delivers for everyone.  To achieve this outcome, a new Social Contract should have five core goals: to deliver a vibrant economy, decent services and infrastructure, just taxation, good governance and sustainability. 

Crucially, however, these five outcomes must be addressed simultaneously.  It is not sufficient to prioritise economic development with the argument that this will produce the resources to achieve the other four outcomes.

Budget 2023 needs to have this new Social Contract at its core.  All five Pillars of Social Dialogue (employers, trade unions, farmers, community/voluntary and environmental) should be involved in its development and implementation.  

Nothing less will do if we are to succeed in effectively addressing the third major economic upheaval of the twenty first century.

Packages Proposed for Budget 2023

In the following pages Social Justice Ireland sets out a series of proposals (and costings) to address all the issues identified here.  A summary of all the proposals is set out on page 17 of our Budget Choices 2023 policy brief.  These are the choices we believe Government should make in Budget 2023.

The major packages proposed are:

• Housing - €1,442.3m
• Just Transition - €562m
• Health, Disability and Carers - €1,436m
• Pensions and Older People - €1,025.7m
• Rural, Regional and Community - €477m
• Education - €412.9m
• Children and Families, incl. Direct Provision - €749.7m
• Other taxation and revenue-raising - €2,605.2m