The Government is digging itself or, more properly, hundreds of thousands of households, into a big hole. By opting for significant once-off payments in Budget 2023, there is a danger of exposing people to significantly reduced living standards. As the ESRI put it:
‘ . . . below forecast inflation increases to tax credits and welfare payments next year will mean many lower-income households will experience real terms cuts in living standards in the latter half of 2023 without a repeat of the welfare bonuses, lump-sum payments and household energy credits.’
Once the bonuses, lump-sum payments and energy credits are used up, social protection recipients will be receiving payments well below the rate of inflation. This is a recipe for growing poverty and deprivation.
Let’s see how this works by indexing inflation and social protection payments from 2020.
Next year, basic social protection payments will rise to €220 per week (single person). But had it been indexed to inflation, it should be €242 next year and, based on Government inflation projections, €248 in 2024.
Therefore, just to keep with inflation (i.e. no real increase), social protection payments will have to rise by €28 per week in Budget 2024. But what chance of the Government doing that?
[NOTE: While basic social protection payments have increased by 8.4 percent since 2020, the standard rate tax band has increased by 13.3 percent. This gives an indication of the Government’s priority.]
Once-off payments have a role in fiscal policy in tiding households over a particular hump. However, they need to be integrated into a medium-term framework that ensures that households at least maintain their link with inflation after the hump. There is no evidence the Government is pursuing this strategy
Instead, once-off payments are being used – quite liberally – to ensure that permanent increases are kept at a minimum. This will result in households’ living standards falling well behind inflation after the inflation hump.
Little Inflation Games
There is a poverty gap opening up between inflation-indexed and actual social protection payments. There are similar interactions in secondary programmes.
- Fuel Allowance: a once-off payment of €400 is being made to recipients of fuel allowance. However, the permanent payment is being frozen meaning a real cut of €66.
- Living Alone Allowance: another payment which get a once-off payment, worth €200. However it, too, is being frozen resulting in a real cut of €81 for the year.
- Child Benefit: this payment has been frozen since 2016. Recipients will get a once-off double payment worth €140. However, freezing the payment means a real cut of €119 for the year.
So what the Government has given by way of once-off payments they have partially clawed back by freezing the permanent payments. So what happens when these once-off payments have been spent? Many household budgets will be holed the water line.
A Progressive Framework
Currently, social protection and pension payments are increased (or not) on an ad hoc basis with short-termist fiscal and political rationalisations. We need a framework that automatically indexes payments against a relevant economic indicator. There are two questions:
First, what is the level of adequacy? The Minimum Essential Standard of Living produced by the Vincentians shows that this year €249 per week is necessary for a single person to reach that standard, excluding housing costs. The basic social protection payment this year is €208.
Save for a pensioner couple (both 66 years or more), all other categories are well below the minimum essential standard of living.
Second, what should social protection payments be indexed against in the future once adequacy has been achieved? There are three options:
- Inflation
- Average Wages
- National Income (GNI*) per capita
It should be noted that, over the long-term, wages and national income per capita outstrip inflation. If social protection payments were indexed to the latter, it would mean no real increase while the living standards for those on fixed incomes would fall behind the rest of society, widening inequality.
Such a framework would need to be flexible and be linked to housing payments. But let’s be clear – it is unlikely that this Government has an interest in developing such a framework.
Fortunately, we have a considerable level of expertise and skills in the area of social policy. Civil society activists, including trade unionists, should come together to establish a People’s, or Civll Society Commission to deal with just this issue: what is the framework to achieve adequacy in social protection payments and what should these payments be linked to? This would lead to a more rational system where poverty can be significantly reduced if not eliminated altogether.
And the first step is to show how we can close the poverty gap between payments and inflation.
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