Irish Economy
Irish Economy 2013: Half of Ireland's population on welfare
By Michael Hennigan, Finfacts founder and editor
Sep 2, 2013 - 7:56 AM

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Source: Department of Social Protection

Irish Budget 2014: Half of Ireland's population is on welfare and when recipients of child benefit, farmers dependent on public subsidies which are effectively welfare, accounting for 81% of average farm income in 2012; legal services costing the state about a half billion euros annually; public payments to doctors; a raft of corporate welfare schemes and the public service itself, at least while Karl Marx is likely to be disappointed that a few remnants of the failed communism experiment only remain, in Ireland there is a shining example of the halfway house known as socialism or to put it in non-ideological terms, dependency on the State.

This year, the Department of Social Protection will spend over €20.24bn on its entire range of schemes, services, and administration. At the end of May, there were 1.476m people receiving a weekly payment in respect of 2.283m beneficiaries. In addition, some 614,000 families were in receipt of the monthly child benefit payment.

The CSO estimated that the total population was at 4.593m in April 2013.

In a subset of welfare recipients in July, there were 486,000 people on Live Register and in publicly funded activation programs and the IMF said the broad rate of unemployment was at 24%, including part-time workers seeking full-time jobs.

When there was full employment, the welfare budget rose from €9.5bn in 2002 to €15.5bn in 2007 - - up 63%. Beneficiaries rose about 80,000 to 1.58m.

The bailout troika has requested that Joan Burton, minister for social protection, cut €440m next year, or just over 2% from the 2014 budget but a spokesperson has said a reduction of that scale could not be made “without doing some very harsh things.”

The minister said last July that, since 2009, the Department had implemented cost-saving measures which had cumulatively reduced expenditure by more than €3bn. At the same time, the number of people in receipt of a weekly welfare payment increased from 1.209m at the end of 2008 to 1.476m now – an increase of approximately 267,000.

She cited the dual importance of the welfare spend - - both in preventing poverty and stabilising the economy. “The most important effect of welfare payments is that they reduce poverty levels. Research has demonstrated that social transfers reduce the at-risk-of-poverty levels in Ireland by over 60% - - the most effective performance in the EU,” Burton said.

She added:  “The second impact of our expenditure - - sometimes forgotten - - is the contribution it is making to the stabilising the economy. The spend of my Department puts money in the tills of almost every business and shop in the State in a very immediate way as our customers spend their benefits and pensions each week, thereby maintaining domestic employment and economic activity.

“The necessity to reduce overall Government current expenditure must be balanced against the primary redistributive role of the social protection system. It is my firm belief that the options chosen to reduce overall expenditure can only be considered having regard to potential poverty impacts and the effect on demand in the wider economy.”

In 2013, revenues including PRSI will amount to €59bn and spending is expected to be €71bn. See page 51 here [pdf]

So the welfare spending alone accounts for one third of revenues.

Joan Burton was more prepared for reform in 2011 when the 2016 general election was more distant. She said in a speech [pdf]:

The social protection budget grew in a particularly dramatic fashion over the past decade. In 2001 spending on social protection stood at €7.84 bn; by last year this had grown to €20.85 bn - - an increase of 266%. Inflation increased by around 30% during the same period.

So while some of the expenditure increase is clearly due to the dramatic rise in unemployment since 2007 the most significant factor is a surge in both rates and the number and size of schemes over a very long period of Fianna Fáil government. Frankly, the increases in social protection payments were often cynically timed to help Fianna Fáil win elections.

As a result, we have inherited a level of social expenditure that is completely out of sync with the funding base of the state. It is clear that we need to put it on a more sustainable footing.

Secondly, while our social protection system is successful in providing a basic level of income support and a threshold of decency, it does not sufficiently enable people to get themselves back on track, in to work, or, in the absence of jobs, to go back to education or training, and ultimately to achieve their full potential.

Our social welfare system has taken a largely passive approach. We allow people to receive certain benefits indefinitely. Traditionally there were only very limited sanctions for those who refused offers of work or training."

Political courage in sailing against the wind in Ireland is rare and it's even rarer still for it to be rewarded by an electorate.

So the default option is to avoid challenging vested interests. For example, forty years after the fight by women for equal pay for equal work, a dual labour system is back in the Irish public service. The system may well be declared illegal in years to come by the European Court of Justice when current political leaders are in superannuated bliss.

Finland and Sweden responded to their economic crises in the early 1990s with radical reforms; the Finns overhauled their education system and it's now regarded as one of the best in the world while the Swedes gave equal rights to all workers by ending the work lifetime guarantee for about 99% of public staff.

The current right to lifetime public sector employment in Ireland dates from 1853 when Sir Charles Trevelyan recommended it in a report he co-authored for the British government.

Trevelyan features in the song, 'The Fields of Athenry,' and he had been responsible during the Famine for closing of food depots in Ireland that had been selling Indian corn. His motivation was to prevent the Irish from becoming "habitually dependent" on the British government.

The following is a detail on additional sectors besides social protection, which are dependent on the Irish Government:

  • According to the Department of Health, the number of medical cards has increased by 391,536 from 1,478,560 at the end of 2009 to 1,870,096 at the end of April 2013 and the number of GP visit cards increased by 30,487 from 98,325 to 128,812 over the same period. Non-capital health expenditure in 2012 was €13.5bn compared with €8.8bn in 2003;
  • Net total receipts from the EU in 2011 were at €586m while the Department of Agriculture, Food & the Marine said in March 2003 that its 2011spending excluding administration costs, was €2.6bn. Teagasc's National Farm Survey 2012 [pdf] shows that family farm income fell by 15% in 2012 to €25,479 on average but was still almost 10% ahead of the 2010 figure. Direct payments comprised 82% of income on average. Land compensation accounted for over €4bn or 23% (double the EU average) of the national roadbuilding programme during the boom, according to the National Roads Authority, never mind a bonanza from other development land sales;
  • The Department of Public Expenditure and Reform in a 2011 paper [pdf] put the annual cost of state agency support for business at over €1bn, involving 3,700 staff. Paul Sweeney who is chair of the think-tank TASC’s Economists’ Network, said in a July 2013 paper [pdf], that excluding agriculture, estimates of subsidies, supports and tax expenditures (reliefs) in 2011 were in the range €2.6 to €3.3bn. For example the cost of the R&D tax credit this year will be about €300m. Corporation tax receipts were at €4.2bn in 2012 [pdf];
  • The Public Accounts Committee of Dáil Éireann said in a report [pdf] in January 2011: "Public bodies are the largest procurers of legal services in the State with an estimated spend of anything up to €500m";
  • In 2001 the Irish public service pay and pensions net pay and pensions bill (ex local authorities) was €10.2bn; it was €16.2bn in 2006 (the peak year of the bubble); €17.6bn in 2007; €18.7 in 2008; €17.1bn in 2010 and was estimated at €16.9bn [pdf] in 2012.

Source: IMF

What can Ireland afford?

What Ireland can afford can only be fairly addressed in the context of overall fiscal policy that should be grounded on both equity and economics.

For example current Irish social protection spending (including health) is in line with France's but half of Ireland's private sector workforce has no occupational pension while the state pension provides less than a third of average income.

Ireland is not a wealthy country and Eurostat, the EU's statistics office, has produced a metric, Actual Individual Consumption (AIC) per capita, based on the material welfare situation of households, that is a better proxy for wealth in Ireland than GDP (gross domestic product) or GNP (gross national product) per capita, because of distortions caused by the dominant foreign-owned trading sector.

Ireland's AIC ranks with Italy, Spain, Greece and Portugal, below both the EU and Eurozone average. See more here.

In the period 2001-2008, the average annual growth rate of Irish social protection at constant prices was at 5%, the highest in the pre-2004 enlargement EU15.

In related research [pdf] published by the Economic and Social Research Institute (ESRI) last December, it said that in 2010, 22% of households in Ireland were jobless compared with an average of 11% for the EU15 and in Spain and Greece, where the rates of unemployment are the highest in the developed world, the percentage of households without a working adult stood at 10% and 7.5% respectively. The Irish rate in 2007 was 15%.

In 2006, the peak year of the bubble, Census 2006 found that Ballina, County Mayo, had the highest unemployment rate among large Irish towns, with 15.8% of its labour force out of work. Tralee (14.2%) and Dundalk (13.9%) also had high unemployment while at the other end of the scale Malahide (4.3%) and Leixlip (4.4%) had the lowest rates. The unemployment rate was calculated using the responses to the question on Principal Economic Status in the 2006 Census [pdf]. The national rate was 8.5%.

A study by the ESRI published in 2011, showed that Irish return-to-work schemes for the unemployed, including FÁS programmes, were generally useless. Ireland's apprenticeship system remains the worst in Western Europe.

The International Monetary Fund (IMF) said in a report [pdf] last year:

An analysis of Ireland‘s expenditure on health and education (which account for more than half of total government expenditure) reveals a mixed picture regarding effectiveness (Tables 5 and 6). Spending on health grew rapidly between 2000 and 2010 to second highest in the OECD, and is now outsized relative to outcomes, which are mostly near the OECD average.

Education spending (as a share of GDP), which was well below the OECD average in 2000, is now also slightly above it, while conclusions on outcomes are similar. Of the almost 5 percentage point of GDP increase over 2000–10 in health and education spending combined, four-fifths occurred in compensation to employees in these sectors. These trends suggest significant scope for efficiency savings, especially in health."

Eurostat said [pdf] last November that social protection expenditure as a percentage of GDP was above 30% in 2010 in France (33.8%), Denmark (33.3%), the Netherlands (32.1%), Germany (30.7%), Finland (30.6%), Austria and Sweden (both 30.4%), and below 20% in Romania (17.6%), Latvia (17.8%), Bulgaria and Estonia (both 18.1%), Slovakia (18.6%), Poland (18.9%), Lithuania (19.1%) and Malta (19.8%).

Ireland's was at 29.6% but using GNP (gross national product, mainly excluding the profits of the multinational sector) would put us at a similar level to France.

Comparing Europe with Asia, only in Japan, South Korea, Mongolia and Uzbekistan out of 35 countries in the Asia-Pacific region does spending on social protection equal at least 5% of per capita gross domestic product, the Asian Development Bank (ADB) said in a report last month. Insurance and pensions dominate such expenditure, while few governments focus on labour, the report said.

South Korea’s social-protection spending, which is about 5% of per capita GDP, is a reasonable target for middle-income countries, ADB said. China's level is 3.5%, the Philippines 2%, and Indonesia 1.1%.

These are not templates for Europe but there are serious challenges to address with ageing of populations.

For example, French men generally retire at 59. So a male entering the workforce at 24 would have 35 years working and 48 years as a dependent of the state. It comes at a cost and France hasn't had a balanced budget in any year since 1974 while public debt rose from 22% of GDP to over 90%.

Meanwhile, in Ireland people have spoken in recent times about the bank-related public debt burden being left for their grandchildren. However, according to Seamus Coffey, a UCC economist, excluding interest costs and sovereign bank support, the total deficit in the six-year period 2008-2013, will put debt of "nearly €60bn more on us in services and transfers than is [collected] from us in taxes and charges."

He asks: "Why is no one concerned about this 'legacy of debt' for future generations?"

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