Dr. Tom McDonnell:

Mr. Nugent and I thank the Chair, the select committee and its staff for the opportunity to appear today to discuss the recommendations contained in the committee’s report on indexation of the taxation and social protection system. We will comment upon the report and discuss recommendations, updates, and developments in the intervening period. The committee’s report was broadly supportive of the principle of indexation. NERI’s view is that indexing all social assistance payments to various appropriate benchmarks, including child, working age and pension payments and the income thresholds for benefits is the most efficient way to design the welfare system if we are genuinely serious about ensuring adequacy and eliminating deprivation, and doing so in a manner consistent with fiscal sustainability.

Indexation should apply to all benefits and thresholds if it is to apply to any benefits and thresholds. However, price indexation is generally insufficient because it will only keep living standards at their current level; it will never improve them. For this reason, indexation to wages or to economic growth is preferable, and even then, it is only sufficient if the relevant rate - the pension rate, for example - is already at or above its adequacy threshold. Indexing to price inflation will also see inequality increase over time as welfare benefits will fail to keep pace with labour income and capital income in most years. On the other hand, wage indexation to something like a percentage of median weekly earnings would anchor welfare rates to developments in the labour market thereby minimising the risk of unintended distortions. Growth in wages, in addition, means

higher tax receipts from labour and consumption taxes. Linking social assistance rate increases to increasing wage rates thus means de facto linking them to increasing fiscal capacity and to developments in the wider economy. Any benchmarks for sufficiency will ultimately have to be based on the cost of living for various cohorts.

Once an appropriate set of benchmarks is established for each of the welfare rates there would need to be a two-stage process. The first stage would see welfare rates converging on the benchmark, as is currently the case with the new national minimum wage which will be benchmarked to 60% of the median wage. Once the benchmark is achieved, the second stage begins and annual growth in the rate is then indexed to growth in the selected benchmark. Income smoothing over a two- to three-year period can be used to ensure real welfare rates do not deteriorate if real wages fall, but also that the rates do not become decoupled from the benchmark over time. There are a range of ways to approach income smoothing and various arguments for and against forward and backward looking approaches to indexation. We are happy to discuss further.

The case for indexing the tax system is more contentious.

Non-indexing the tax system will, of course, marginally increase the effective rate of tax on labour income over time for those middle- and higher-earning individuals earning enough to be captured by higher rates. On the other hand, non-indexation or bracket creep will add to Government revenues over time and will do so in a way that is less politically fraught than increasing tax rates on things like carbon or VAT or introducing new sources of revenue, such as a site value tax or water charges. This fact is particularly pressing given the key finding of the report of the Commission on Taxation and Welfare that the overall level of revenues from tax and PRSI as a share of national income must increase materially to meet future challenges to fiscal sustainability. The mixed political reaction to that report shows just how difficult it will be to achieve this. A final point on this is that non-indexing of the tax system does not pose the same existential adequacy issues for households that is posed by non-indexation of the welfare system.

Since the committee's report, the IMF has put together a new 2023 data set on indexation in public finances around the world. It found that 115 out of 192 countries have at least one form of fiscal indexation. It found that pension indexation is most common in Europe. Globally, from 93 countries in total, 40 countries index to prices, 15 countries index only to private wages and 38 countries have some form of mixed indexation. Other social assistance indexation, namely, non-pensions, is most common in advanced economies. Some 31 countries have some indexation to price and 15 have some indexation to other variables. Indexation of personal income tax thresholds is less common. Some 18 economies automatically adjust thresholds and another 16 do so regularly. Finally, public wages are the least likely to be indexed, with very few countries doing so. Some of these countries index public wages to prices, while others index to variables such as growth.

The Commission on Taxation and Welfare was clear in its analysis in its 2022 report that it saw benchmarking of social assistance payments and thresholds as the key necessary reform to the welfare system. Specifically, it recommended that the Government undertake a regular benchmarking exercise of all working age income supports, including supports for people who are unemployed, people with disabilities, people parenting alone and so on, following which multi-annual targets should be set for social welfare rates which provide for regular incremental progress. As noted in the report, annual increases in social welfare rates should be based on a transparent and evidence-led process. Its view was that the adequacy of social welfare rates is central to poverty reduction. This implies different rates to reflect, for example, the cost of disability for various cohorts. Crucially, the commission also argued that secondary benefits for people of working age should be designed on a cross-departmental basis to ensure policy coherence and assess the cumulative impact of all benefits, thresholds and cliff edges. Any independent indexation body that was set up would ideally liaise on an ongoing basis with such a cross-departmental group. The process of reforming existing structures and benefits and adopting the commission’s various reforms would ideally precede the multi-annual two-stage indexation process. Good quality data on household income and household spending will be crucial.

Unfortunately, the Government’s response to the cost-of-living crisis and the subsequent rise in the deprivation rate over the last two years has shown clearly the inadequacy of the tools being used by the Government to protect against poverty and deprivation. Despite being advised by a range of NGOs and national and international institutions to adopt a targeted approach to the cost-of-living crisis, the Government persisted with a slew of untargeted once-off measures and inflationary tax cuts, including to households that were in no danger of poverty or deprivation and at a time of record net household wealth. Once-off measures were an entirely inappropriate response to a cost-of-living shock. The reality that the increase in the cost of living was structural, cumulative and permanent was either not acknowledged or, when it was acknowledged, it was stated that we did not have the State capacity to make appropriate targeted interventions. Policy failed because it did not have a benchmarking and indexation process in place. We need to be able to do better next time.

Of course, indexation has now entered the policy tool kit with regard to the national minimum wage. This reform was perhaps prompted by the need for the Government to come into line with the EU’s adequate minimum wage directive, which sets a target of 60% of the median wage. The indexation of the minimum wage makes it easier to index social welfare rates as they can be calibrated multi-annually to ensure there are no labour market disincentives inadvertently created.

In conclusion, benchmarking and indexation are important policy tools that can improve well-being and reduce inequality, poverty and deprivation. Properly designed and coupled with other policies, these tools are consistent with fiscal sustainability and, indeed, with wider labour market goals. In practice, an independent ongoing body including civil servants, NGOs and academics should be established to determine appropriate benchmarks for the various rates and to recommend to the Government as part of the budgetary process. A clear process of indexation will enhance budgetary transparency and improve the quality of the national debate about poverty, distribution and fiscal impacts but, at the same time, the recommendations should be treated as such and need not tie the hands of elected representatives. However, even with this discretion, automatic indexation would become a de facto baseline against which policy is assessed, rather than the current no-change baseline we use at present.

Mr. John McGeady:

Gabhaim buíochas leis an gcoiste as ucht an chuiridh. Social Justice Ireland has consistently called for core social welfare rates to be benchmarked. We believe that average weekly earnings is the best anchor for indexation, beginning with a benchmark of 27.5% of average weekly earnings and then setting out a pathway to move towards 30%. As noted in the committee's 2022 report, indexation would provide certainty to households as it would make incomes more reliable and protected. Mindful that inequality between earnings and social welfare rates increases risk of poverty and damages social cohesion, linking social welfare rates to average earnings would also prevent the gap between the two from widening excessively. The estimated cost of bridging the gap between core social welfare rates for disability allowance, job seeker's allowance and carer's allowance and the benchmark of 27.5% would be €296 million. We believe this is eminently achievable in terms of the overall budget.

Based on the survey on income and living conditions, SILC, data from the CSO, we know almost 560,000 people are living in poverty in Ireland. Of this number, approximately 177,000 are children and 65,000 are aged over 65. The rate of child poverty is deeply troubling, with one in seven children in households below the poverty line and more than 260,000 children living in households experiencing deprivation. Fundamentally, child poverty cannot be separated from the poverty experienced by the families to which those children belong. Additionally, there is a substantial number of individuals living near the poverty line in Ireland. In 2022, a €10 increase in the weekly value of the equivalised poverty line would have corresponded to an increase in the poverty count of 109,000 individuals. This shows how small changes in income could lift people out of or shift people into poverty.

Trends in the poverty rate before and after welfare transfers from 2001 to 2022 highlight the importance of adequate social welfare rates to prevent people falling below the poverty line. Without the social welfare supports, just over one third, or 34.1%, of the population would have been below the poverty line in 2023. Overall, social welfare transfers reduced poverty by 23.5 percentage points. Without the additional cost-of-living measures provided last year, the poverty rate would have been 13% in 2023, instead of the actual 10.6%. The significant reduction in poverty achieved through social transfers demonstrates the importance of social welfare rates in lifting people out of poverty. The short-term cost-of-living transfers, which had such a significant effect on low-income households, will not persist into late 2024 and beyond. In their place, it is essential to provide adequate core social welfare rates.

As per the Department of Social Protection's annual statistics report 2022, more than 2.3 million people are in receipt of some form of social welfare payment. More than 85% of the recipients are those who are not in a position to seek employment, namely, children, old age pensioners and those in receipt of illness, disability or carer's payments. These statistics underscore a crucial reality. The majority of social welfare payments are for individuals unable to pursue employment opportunities. Given this, we must not fall into the trap of believing that adequate social welfare rates might somehow disincentivise work, something that should in any case be self-evidently false in an economy at near full employment.

Fundamentally, core social welfare rates must be maintained at a level that provides for a socially acceptable standard of living that provides for all basic needs. A report from the Parliamentary Budget Office from 2021 analysed changes in social welfare rates from 2011 to 2021. One of the key findings of that report is that a failure to index core social welfare rates to either wages or inflation has resulted in a significant fall in the real value of these payments. Importantly, as highlighted in this committee's 2022 report, flat-rate increases, typically of approximately €5 per week, may not address the needs of recipients. Failure to adjust social welfare rates in line with rising wages may exacerbate the plight of lower income households, widening the gap between their incomes and the broader economy. A benchmark against earnings would address this problem.

Social Justice Ireland proposes a minimum benchmark of 27.5% of average earnings and that the Government should then outline a pathway to 30%. We propose that this process should be overseen by an independent body which would independently outline the indexation pathway, base any recommendations on independently verified data and calculations such as those delivered by the living wage technical group, for example, and outline the annual changes to social welfare payments this may entail.

Based on average weekly earnings of €916, the value of 27.5% equals €252. This implies a shortfall of €20 between the current social welfare rate of €232 and the benchmark threshold of €252. The estimated cost of bridging this gap for disability allowance, jobseeker's allowance and carer's allowance, and increasing payments to meet the benchmark, is €296 million. We urge the Government to recommit to this benchmark in budget 2025 and bridge this gap. Indexation would provide certainty for the Government in terms of resourcing and revenue generation, but it also would provide certainty for those on fixed incomes who must make ends meet on limited resources on an ongoing basis.

The Government has a clear anti-poverty commitment, as outlined in the roadmap for social inclusion and the sustainable development goals. Given that those most at risk of poverty are often the most reliant on the social protection system, if they are not to fall behind the rest of society at times of economic growth, the benchmarking of welfare rates to wages is essential and must be the priority for budget 2025.

Aindrias Moynihan (Cork North West, Fianna Fail)
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Gabhaim buíochas le John McGeady as ucht an cur i láthair. There were a lot of real, interesting points raised. I wish to clarify one or two things. Mr. McDonnell talked originally about catching up and bridging the gap between the current levels of social welfare are and the start point, as it were. I understand that Social Justice Ireland has set a target of 27.5%, to then go on to 30%. I am trying to get a handle on whether a similar target was set by the Nevin Economic Research Institute on that gap and how quickly the catch-up phase would be seen, if that information is available.

Reference was made to the need to go all the way in respect of all social protection payments. I am curious about what Social Justice Ireland said regarding core social welfare. Maybe it can clarify whether, when it talks about core social welfare, it is referring to the main payments like the jobseeker's payment but not the adult and child dependent payments? Is it referring to some select group of social protection payments? I ask for clarification on that, please.

Dr. Tom McDonnell:

Not all households are the same. Consumption patterns are often very different across households, depending on their age, housing situation, the part of the country they live in and whether they have a disability, etc. Our point is that we want to create an adequacy benchmark. Part of the point in setting up an independent body is to attempt to establish what that adequacy benchmark or threshold would need to be for the different cohorts. This raises a question around how many different groups there are, how finely do you cut it and how broad those groups are. For that reason, we have chosen not to specifically define that it is a certain percentage, or whatever it might be, because it will be different for different groups. Someone experiencing a disability will need to have a higher percentage than someone who does not experience a disability, and so on. That is the answer.

We are also of the view - we anticipate the review will identify this - that various payments are below the adequacy benchmark and therefore, there will have to be a process of getting there. If you are very far away, the question is whether you make the leap in one year or over a three-year period. That is what we described as the first phase - getting to 30% or 40%, or whatever the mark might be. From then on, the wages become effectively benchmarked and you grow along with them, as long as they are real wages because you do not want the standard of living for the people at the very bottom to fall. In those years, it could be based on the price and you go a little bit above and then you come back slightly lower than wages in future years. That would be the type of model we envisage. For that reason, there would be different percentages for different groups - that is what we were talking about.

As for how quick the catch-up would be, certainly you would want to do it within a two- to three-year period, at its slowest. The figure of €296 million that Mr. McGeady talked about is a very small proportion of the average fiscal space in a single year, which is many billions of euro. It is certainly fiscally possible to do it in a single year. Obviously, we are not against that. We do not believe there would be any negative impact on the labour market. If you are moving the minimum wage to a certain percentage, everything else is probably a lower percentage from that again. As they are all linked together, there should not necessarily be any negative labour market impact.

Aindrias Moynihan (Cork North West, Fianna Fail)
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Does Dr. McDonnell envisage some body doing that assessment sector by sector? Does he have an idea of what body that would be and what would inform its decision? Who would need to be on such a body?

Dr. Tom McDonnell:

In recent years, we have seen the creation of a fiscal council and a Low Pay Commission. They both work on different models. One is a secretariat model with researchers and the other is more about competing social partners combined with academics. I see this as requiring a role for civil servants and academics, but also bodies that are advocates so that they are at the table and their voices are heard as well. There would need to be a secretariat who would be able to do this type of research. The type of information needed from the CSO ultimately would be consumption patterns for different household types to understand what they need to spend on and from that, it could be determined what an advocacy benchmark would be. As Mr. McGeady said, the living wage technical group performed that type of function already but this could be a more formalised semi-government body like the Low Pay Commission or something like that. It would report the adequacy threshold for various groups and report that to the Government to say that it needs to be a certain percentage of the medium or the average wage, whichever it might be.

Obviously, elected representatives make the ultimate decision based on whether they agree. That is how the Low Pay Commission works. The Government is not obliged to accept the view of the Low Pay Commission and it is certainly not obliged to accept the view of the fiscal council, which it does not, usually. That is how we see it. Such a body could be set up quite quickly. Maybe the results would not be ready in time for budget 2025 but it certainly would be feasible for budget 2026.

Mr. Ciar?n Nugent:

There is a template with the work on the minimum essential standard of living. There have been changes too based on different kinds of household formations. There are already estimates for what the euro figure is for the minimum essential standard of living. Evidence of growing inadequacy of welfare rates has already been coming out through the CSO in recent weeks, particularly in regard to workers - I know we are not talking about workers - but with regard to every group really. The share of the unemployed who cannot afford the basics and are in forced deprivation is close to 40% and has been growing in recent years. That is kind of already established.

Aindrias Moynihan (Cork North West, Fianna Fail)
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I thank the witnesses. I also looked for clarification on core welfare payments.

Mr. John McGeady:

To be clear, we argue and advocate that all social welfare rates should ultimately be indexed. We simply said we would begin with a number of core rates and we highlighted disability allowance, jobseeker's allowance and carer's allowance as a starting point. As Dr. McDonnell said, over a longer period you could begin building on that. We choose those particularly because-----

Aindrias Moynihan (Cork North West, Fianna Fail)
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Is it the basic payment, the qualified adult or child dependent payment or------

Mr. John McGeady:

It would be the basic payment.

When we are talking about the core social welfare aspect, we mean the basic payment. The different supplementary payments that combine with that would need to be indexed in future. Certainly, for the core rates, as has been stated, this would come in at €296 million to bridge the gap. As Dr. McDonnell said, this is actually quite a small sum of money. The total cost of the changes to the USC in budget 2024 was €365 million, and we are talking about a figure lower than that. Again, this change to the USC was a permanent measure, not a one-off.

Looking at some of the temporary measures, the cost of an energy credit is about €400 million. Again, we think this is a very realistic starting point. We chose the 27.5% rate because it is based on the Government's national anti-poverty strategy from 2022. It referred to providing €150 weekly, which comes in at 30% of what was then the gross average industrial earnings level. The CSO no longer records this figure, but it is equivalent to 27.5% of average earnings, a statistic that is being recorded by the CSO. This is a starting point in respect of the rate and the number of core payments that would be covered.

Aindrias Moynihan (Cork North West, Fianna Fail)
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I know the time has gone, but I ask Mr. McGeady to clarify briefly if the pension would be included in that core perspective.

Mr. John McGeady:

We did not include the pension in this core context because the pension now actually exceeds the 27.5%.

Aindrias Moynihan (Cork North West, Fianna Fail)
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Okay.

Mr. John McGeady:

Obviously, we know that if we look at the deprivation and poverty rate, which came out in the CSO's SILC data, a very large number of people are on pensions who would have been in poverty had it not been for the additional cost-of-living measures introduced. This goes to show those cost-of-living measures are having a major impact. The fact that these are not going to continue is an issue of serious concern. The benefit these temporary measures have been having needs to be translated into the benefit of the ongoing constant core social welfare payments. Again, for the purposes of this aspect, we were looking at those three payments at that 27.5% rate. That is only a starting point, however, it is by no means the endpoint.

Aindrias Moynihan (Cork North West, Fianna Fail)
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Sure. Go raibh maith agat.

Paul Donnelly (Dublin West, Sinn Fein)
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Go raibh maith agat. I thank the witnesses for their presentations. Following on from that previous question, the Parliamentary Budget Office showed two consecutive years of real wage decline in 2022 and 2023. Projections now indicate that workers relying on State pensions and other welfare supports will be worse off at the end of 2024 than when this Government came to power in 2020. I wonder if this information matches up with the research of the witnesses' organisations. Is it fair to conclude that in real terms people, on average, have been worse off since 2020? In order to introduce indexation in a fair and effective manner, would we still need to guard against loss of income in real terms in situations like those we have seen in recent years whereby wages have not kept up with inflation?

I have a few other questions. The argument is often made that because we have an ageing population, we cannot afford to index welfare payments due to the fact that the cost of pensions would be unsustainable on foot of demographic changes. As Social Justice Ireland outlined in its submission, the largest number of recipients of welfare payments are parents. We know we have a declining birth rate, and we need to support people and families by reducing the cost of having a family if we are to have stable demographics and a strong workforce. How would the witnesses respond to opposition to the indexation of welfare payments on grounds of demographics and public finances? I will let the witnesses address these questions, and then I might come back in with another few.

Mr. Ciar?n Nugent:

I will just cover the wages and incomes part and then I will let Dr. McDonnell talk about the demographics. Yes, wages have dropped in real terms and have not kept up with inflation in the past year. The lag is about 2%. I refer to 2023, that is the final quarter of both 2022 and 2023. This is reflected in the deprivation figures. It is about one in eight people now. This statistic increased slightly in 2023, but we would have expected it to have gone down with such strong employment growth, etc. This measure does not count people who might be deprived of independent living, such as young adults, which is a growing issue too. The statistic in this regard is about one in eight people now, whereas it had been one in 12. In absolute terms, then, more than 60% of workers in the Irish economy are struggling with bills, and the number in this situation really jumped in 2022. There is definitely an issue here, then. The same can be said for household incomes. Inflation in this regard was about 24%, while incomes increased by under 2%. There is a lag there. Although the most recent inflation figures are positive, and coming down to some kind of normal level, it is still not certain that wages will increase quicker than inflation this year. This will mean another drop for workers.

Paul Donnelly (Dublin West, Sinn Fein)
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I thank Mr. Nugent.

Dr. Tom McDonnell:

In essence, demographics was the single biggest reason why the Commission on Taxation and Welfare felt that taxes would have to go up over the longer term. This is because one of the commission's five principles was adequacy. We are failing as a society if we do not provide adequacy for our citizens. The deprivation rate is a score of our failure in a sense. We are failing every single person experiencing deprivation. The answer cannot be that we do not want adequate pensions; they must be adequate. We must establish what that adequacy benchmark is in any event. Our demographic change is a positive story because people will live longer, but there is a fiscal cost to this. Many people argue that the working-age ratio is problematic and that, in some cases, people may wish to work beyond 65, 66 or whatever. There may be solutions to allow us to do this. It is also worth noting that while growth will be slower in future, it will be growing from a higher point. It must be borne in mind that this is not comparable to where we were in the 1980s, 1990s or the 2000s.

Ultimately, it is very much the case, and the Commission on Taxation and Welfare was clear on this point, that if we are to maintain minimum adequate standards for the population as a whole, then we need to do something about our revenue base, either tax or our social security contributions, whichever it might be. Many ideas were put forth in that report on to how to do this, acknowledging that increasing taxes is challenging. One of the advantages of non-indexation of the tax system is that it is actually the least salient way to increase taxes. It is, arguably, the least politically toxic way to do it. Governments have generally done this throughout the world because it is very hard to introduce new taxes.

It is important to acknowledge that there is a fiscal cost to this approach, but also that, ultimately, this is a bottom-line principle for a civilised society. I refer to ensuring minimum adequacy for people who are no longer able to work because they are in retirement and of a certain age. This is how I would answer that point, and it means that we need to be very careful in budget 2025 and subsequent budgets in the context of the drive to cut taxes. This can be a very politically expedient sugar rush at particular times, but it is not a sustainable fiscal strategy into the future. It is not tax cutting we should be undertaking but identifying sensible new sources of revenue and broadening the tax base.

The Commission on Taxation and Welfare emphasised the need to increase taxes on wealth as a broader class on foot of the much lower effective tax rates that apply. Inheritances, for example, are taxed. Net wealth in Ireland amounts to about €1 trillion. We get about €500 million a year from inheritance tax, but there is obviously only one generation involved at any one time or one application of such a tax every 25 years. It works, therefore, at about a rate of 1% and 2%, whereas the effective taxes on labour and consumption are ten times greater, or even more. This is just one example. The point is that we can fix the tax system and do so in a way that does not hurt the average family, while at the same time providing an adequate standard of living to our older population in future.

Ms Susanne Rogers:

Very quickly on the demographic challenge we face, Japan and Italy are now at a stage where they have dropped below replacement rates. They are actively looking at the sorts of tax breaks and benefits they can put into households, but these measures are not working. It would be interesting to see which measures could actually make women have more babies. I am not too sure that an increase in my tax credit would be one of them. It is a matter of demographic change. Where there is growth, it is a result of inward migration. That is something that really has to be discussed as well.

To pick up on the issue of poverty, the survey on income and living conditions indicated that poverty reduced but deprivation went up. That is a concern. I will go back to the piece about growth, pushing for growth and looking at demographic changes and where we get growth. I have just finished reading Liam Byrne's book, The Inequality of Wealth. In it, he states, "lifting the income of the poorest share accelerates growth". The IMF has said that a 3% decrease in the Gini coefficient, which is the standard measure of inequality, boosts economic growth by 0.5% a year, while the OECD says that if inequality is increased by 3%, growth will slow by 0.35% a year for 25 years. We can have a conversation about growth, degrowth and slower growth but, in terms of seeking to fund my retirement, because at this rate I will be totally reliant on the State pension, will I be able to put three bars on the fire if I wish to do so? We need to get much more creative. Regarding the Commission on Taxation and Welfare, every time tax is mentioned, people immediately think of their wage slip. We need to be much more creative. We need to look at income gaps, but we also need to look at the wealth piece, which we tend not to concentrate on enough. I appreciate that will be for another committee, but it is a conversation we need to have.

Mr. John McGeady:

The Deputy also mentioned the erosion of workers’ wages. It is important to note that, according to the CSO and the SILC, in-work poverty was at a rate of 5.9%. Employment is not necessarily a route out of poverty. There needs to be serious reform of our economy in order to address that and ultimately bring in a living wage.

Finally, I echo what has been said. There is ultimately a choice. Do we begin with tax? Do we ask about the most that the Government is willing to tax and then divvy it up and, if it is not enough, then too bad? Alternatively, do we ask what is needed and then find out how to source it? That is the choice.

Paul Donnelly (Dublin West, Sinn Fein)
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Even around the issue of demographics, there is the interesting question of immigration. The projections for population growth over the next number of years are going in that direction, so it seems odd to argue against it in the context of the demographics issue. I find it pretty puzzling that that is being used. We know that when immigration increases, people get work, input to the economy, pay taxes, etc. They spend money, which again brings in more taxes. I find that demographics question a bit odd at this stage.

Mr. Ciar?n Nugent:

I have one last point. The elephant in the room when speaking about adequacy is the cost of living. More older people who do not own a home will be hitting the pension age. Obviously, the adequacy levels that will be needed for them will be higher. We are also talking about childbirth issues. That is clearly a housing issue. People are stuck at home and financially unable to take the steps that generations before them have taken. One of those steps is having children.

I know we are talking about benchmarking and euros but, on the costs side, the pressures are not the same. The living wage estimate is driven by increasing housing costs. I am sure it is not a surprise to anybody here, but that is the big elephant in the room in that conversation.

Paul Donnelly (Dublin West, Sinn Fein)
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Interestingly, more and more people in their 50s and their 60s are coming to my constituency office having received a notice to quit or a significant rent increase. They may be retired or may have had to leave work early because of illness, etc. They do not have the ability to pay the mortgage they are still paying or to pay their rent. We are seeing that more and more. It is a really sad indictment of our society when this happens to people who have worked for their entire lives. There are also people who have disabilities and could not work. They could not enter the workforce because of the barriers to entry into the workforce for people with disabilities. It is an appalling indictment that those people are facing a fear about where they will be. If they go onto the housing list, we are talking about ten years. It is appalling to tell somebody who is 62 or 63 years of age that they will be on the housing list for a minimum of ten years.

Patricia Ryan (Kildare South, Sinn Fein)
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I thank the Leas-Chathaoirleach and our guests. I know we have been speaking about pensions and older people. I note that the guests spoke with Deputy Aindrias Moynihan about pensions and the three cores. Initially, that involved carers and so on. Do the witnesses agree that the current State pension level, which stands at approximately €277 per week, needs to be brought up to at least €338 per week, which is the minimum essential standard level, according to the Society of St. Vincent de Paul, before bringing in benchmarking? This would ensure that benchmarking starts at the basic minimum living standard. I worked with the Society of St. Vincent de Paul so I am very aware of the poverty with which it deals, particularly for elderly people. I am wondering about the witnesses’ thoughts on that.

Ms Susanne Rogers:

I have to give thanks to my colleague in AgeAction, Dr. Nat O'Connor, for these particular notes. He was hopeful that I would be able to refer to some of them if we touched on pensions. His concern is that there is a pledge, but this goes back to the adequacy piece. The pledge is to benchmark the State pension at 34% of average earnings. There is a concern that there is a proposal to use an alternative, much weaker benchmark than the average earnings. That is a big concern. To quote another colleague, Seán Moynihan, who is from ALONE, this goes back to how we keep talking about fivers and tenners in every budget. The State pension is now-----

Patricia Ryan (Kildare South, Sinn Fein)
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It is €277.

Ms Susanne Rogers:

So it is approximately €1,000 a month. What happens when that also has to cover €1,500 for rent? A pension of €2,500 per month is now needed just to be able to put a roof over one's head. His major concern was that the original proposal, which was a benchmark from approximately 1998, was being eradicated and eroded by a much weaker benchmark that did not seem to come from anywhere solid. That was a real concern. Everything goes back to adequacy and deciding what adequacy is. If we all take one step to the left, we need to make sure that everybody can come with us. As inflation rises, wages can still get there, although it might take a little while. That way, at least, we will be keeping in line with that. At the moment, social welfare rates are not grounded in any kind of reality. It is €232 to put a roof over your head. That includes rent. If people are unfortunate enough to be trying to deal with a mortgage, they can forget it. I know the banks encourage people to pay a differential rent rate. It is to put food on the table. It includes your heat bill, light bill, mobile phone, haircut, opticians, doctors, dentists, TV licence - if you are still paying it - bin tags, bus fares, prescriptions, clothes and toiletries. That is an impossibility.

Patricia Ryan (Kildare South, Sinn Fein)
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Ms Rogers is not encouraging us to grow old, I am afraid. We are becoming an older generation, however, and we have to take that into account. That is where the fear is. Deputy Donnelly said that many people are going to his constituency office. It is a similar situation in my constituency in rural Ireland. People are telling me they cannot afford this anymore. Even with the cost-of-living increases they got, they were still panicking. If those cost-of-living increases are taken from them, they will definitely be panicking.

I will ask two consecutive questions, if that is okay. I am conscious of the clock. With regard to the fact that price indexation is viewed as a standstill policy, what measures could be put in place to ensure such indexation actually benefits those who need it most, such as elderly people who are solely dependent on the State pension? This is what we are talking about.

At present, it does not even come up to the minimum essential standard of living levels. People are disproportionately affected by the cost-of-living and fuel crises, which is what we are talking about. These people need benchmarking to bring their living standard up to at least a minimum essential standard of living.

I will go back to Dr. McDonnell. He said in his opening statement that, "Once an appropriate set of benchmarks is established for each of the welfare rates there would need to be a two-stage process." Will he elaborate on that so I can get a grasp of it, please?

Dr. Tom McDonnell:

Yes, of course. The first point was about price indexation. The reason price indexation is not suitable is because if we index prices, we are saying a person's standard of living will never improve. I know something similar has been said about the minimum wage in recent years in the media whereby it should be linked to price increases, which is basically saying people's wages and standard of living will never improve, even in 20 years' time.

The second problem with price indexation is that, over the longer term, wages grow faster than prices. If wages did not grow faster than prices, then the living standard for workers would not improve. However, they do, slowly. Sometimes it goes backwards, like it did in the past two years, but generally it goes forwards. Therefore, if a person has his or her personal pension on a price index model that goes up by 2% every year, as the European Central Bank, ECB, would like it to be, but wages are maybe going up by 2% plus a little bit extra for productivity or whatever, maybe 3%, that 3% or 2% is actually accelerating past the person on the pension. That means they are becoming even more decoupled from the vast bulk of society in terms of their standard of living. It creates a whole class of people who are on fixed incomes because they are not able to work or they are of a certain age or whatever it might be and they are falling further and further behind. Therefore, if we wanted to keep their living standards moving along with the rest of society, we could either link it to economic growth, wages or, indeed, incomes, which include capital income as well. Those would all be reasonable options to think about. I like median wages because it is the middle person and it links it to what is happening in the labour market. It is also less volatile than the mean or average wage, for example, which can often be skewed as well by some very high salaries at the top. That is why we think price indexation is not the right way to go and wage indexation is better.

The Deputy's second point was about the two-step process if I recall.

Patricia Ryan (Kildare South, Sinn Fein)
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Yes. I just want to get a better grasp of it, please.

Dr. Tom McDonnell:

Let us say we establish for a particular payment, whatever it might be, that we think the benchmark is going to be 32% or 35% of wages or whatever it might be and the starting position is 27%. The first stage is just to get up to that level, and when we have got to that level, at that point, it is effectively indexed to wages. We start at 27% and say that, over a two-year period, we will get it up to 32% of what we think wages will be in two years' time, which means that for those two years it will be growing faster than wages. Then, when it gets there, it is linked to wages. Obviously, in some years the wages will fall and we can adjust. Those are the two stages. The first stage it is faster than wages and the second stage is at wages, assuming, of course, it is currently at a level that is below the adequacy benchmark, which I suspect it will be for all of them.

Patricia Ryan (Kildare South, Sinn Fein)
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For quite a long period?

Dr. Tom McDonnell:

No. I am sorry. I assume that any research-based approach that looked at the adequacy of payments would find that none of them reached the adequacy threshold and, therefore, there would be a catch-up for all of them.

Patricia Ryan (Kildare South, Sinn Fein)
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That is perfect. I thank Dr. McDonnell very much.

Mr. John McGeady:

To echo what Dr. McDonnell said, again, the key thing is that the great advantage of indexation is that once we have reached the benchmark, which takes a bit of work, after that, we are only ever incrementing with wages increases or earnings increases, which are what they are, but it is not a huge jump. What it does is take the mountains and valleys out of the system. What we can see when doing a long-term analysis are waves of poverty and waves of inequality in our system. Very often, we will see that as we have economic growth, we will actually have an increase in poverty. What happens is that as wages increase, the social welfare rates do not keep pace. They fall behind. We end up with a situation where more people are below the 60% of the median income, which is the poverty line, and then the Government has to work to eventually play catch-up and bring them up. However, in that space in between them falling and that eventual catch-up, a huge amount of damage can be done. The thing about indexation is that it takes that damage out of the system because it allows us to maintain a consistent link with wages and with the broader economy. I felt it was very important to draw attention to that.

The Deputy mentioned people being fearful and anxious. The other thing about indexation is that it takes anxiety out of it because people will know they are not going to be waiting until budget day to find out whether their rate is going to go up by a tenner or €12 or whatever it is going to go up by. They will know that at a minimum it is going to keep pace or retain its value compared with wages. That is a really important point to make.

Dr. Tom McDonnell:

I very much would. I think it was an incomprehensible decision to get rid of it. When it happened, I agree that it did seem triumphalist and almost vengeful at the time. One wonders about the real reasoning. Even so, “Yes” is the answer. We are not doing this as a society. We are not gathering the data or doing the research, with some exceptions, of course. We are not doing that rigorous research to identify what are the consumption patterns and what people need for an adequate standard of living that allows them to fully participate in society without deprivation. We have to do that research.

We know that we now have the adequate minimum wage directive, which is supposed to do part of this job in terms of wages, and that will probably go beyond 60% to 66% eventually, I suspect. Why not do it for the welfare system as well? We need to do it for vulnerable people on fixed incomes who, as the Leas-Chathaoirleach said, are essentially knocked around like a political football for six months, treated like children, effectively, and completely disenfranchised. We need to have a rigorous, evidence-based process which will have academics and civil servants from the Department of Public Expenditure, National Development Plan Delivery and Reform look at fiscal sustainability, social protection and so forth and bring in their insights, but also NGOs, users and a secretariat, such as the Combat Poverty Agency. They are doing the on-the-ground research and building up their skill sets over time - over decades, in fact. They are open to ideas and looking to what other countries are doing, what works and what does not work. We need something like that. We have a Low Pay Commission for low wages, we have a fiscal council for the budget. I do not understand why we do not have one for poverty, deprivation and welfare payments as well. Unfortunately, it will always be necessary because the market does not care to and will never be able to provide adequate incomes for all in any event.

Mr. Ciar?n Nugent:

Based on a back-of-the-envelope calculation, it kind of aligns with last year’s inflation because it looks like a 4% increase, so that might be it.

Ms Susanne Rogers:

Just to get it all out of my head regarding that piece about poverty, we have just come from Eden Quay and walked through town. I would ask anybody who believes that poverty is gone to walk through Dublin city centre any day of the week and see the lost and lonely, with nowhere else to be and nowhere else to go. It is really shocking. The gaps are getting wider and wider. It is like the 1980s. We had no money in the 1980s, so I could kind of understand it being the case then. The city centre is derelict; it is full of people with nowhere to go.

I do not understand how we can do that when, as Dr. Stephen Kinsella from Limerick put it at the Central Bank conference last year, we are making up new ways to spend our money in the budget. We are not going without but it is that piece about welfare. We have anti-poverty targets in the roadmap for social inclusion, we have a child poverty and well-being unit, we have the sustainable development goals, the first of which is that there be no poverty. We have commitments for 2025 and 2030. We can see the links between welfare and poverty reduction. I brought with me the recent third annual report of the ESRI on poverty, income equality and living standards in Ireland. Members will see that where it deals with poverty in older age, the graph goes up and then plummets because a political decision was made to tackle that cohort. However, the prebudget submissions come in thick and fast and they are completely ignored. I do not understand what the plan is to reach these anti-poverty targets. Even on a moral and ethical level, this should not be the case. This is where Jesus and I part ways: I am not sure I quite buy into the idea that the poor will always be with us.

Dr. Micheál Collins has updated his figures for the hidden cost of poverty. For the public service cost of poverty in Ireland, in figures from December 2023, the main estimate is a cost of €4.5 billion a year to the State to pick up the pieces from the damage done right the way through from cradle to, unfortunately, very early grave for many people living in poverty. It is that zero-sum thinking that we get locked into when it comes to these welfare discussions. It is for other people. They can live on that kind of income whereas if I lose my job, which I might if I keep talking, I will get €232. It is something for other people. It is for people who do not want to get up in the morning and do not want to go to work, which is basically everybody I know.

Dr. Tom McDonnell:

We saw during the Covid pandemic that the rates were not deemed to be sufficient for middle-class people, although they were okay for working-class people. If it happens to us, we say that we need to develop a whole new system to protect our people because we do not deserve to be unemployed. That is how I see it. I am being slightly too cynical of course, but the point is there.

Dr. Tom McDonnell:

The very fact that we had to do the once-off payments was evidence that we did not have the system of indexation and benchmarking in place that could have easily responded to an increase in inflation by simply uplifting the rates, including minimum wages and all of that. We did not have that, and we had to go with an untargeted approach of “Let us give everybody something because it is very popular to do that”. Even if someone was on €500,000 and had net wealth of €10 million, they were still going to get the same amount, even if they were never going to spend it. I understand why that was done. It was done for political reasons, but it was a wasteful response. Instead of genuinely protecting people at the bottom, there was this idea that we were all worse off so we had to cut taxes instead. That was very frustrating because, on some level, they must have known cynically that those tax cuts were going to have an impact on deprivation and poverty.

We know what the measures are. We know it is about income and it is also about universal basic services. If we decommodify and make available things like childcare, make housing cheaper and make education and health actually free, all of these things can reduce the cost of living, and that works too. I could also mention free schoolbooks and free school dinners. It is not necessarily always about rates. Those types of measures are particularly useful. There is a concern in many countries that people will not actually avail of the payments they are entitled to, so those types of measures that everybody gets - that decommodification or that removing of the market - helps people as well.

Ultimately and fundamentally, the Covid crisis and the cost-of-living crisis have shown us that we do not have adequate systems in place to deal with these types of events. We could throw money at the first one - at that type of shock - and those measures were absolutely justified. For the second one, we had no answer.

We gave everyone energy credits. However, we do not have a proper system in place to stop deprivation from increasing, as it has in the past two years. That is a policy failure. We want deprivation to get down to as close to zero as possible. The only way we can do that is by providing adequate minimum incomes for everyone in society.

Mr. Ciar?n Nugent:

On a European level, the social exclusion and deprivation, SED, indicator is a wider indicator of poverty. In Ireland that is currently 20% which equates to one million people. Measuring on that started in 2014. It was then 25%. In that interval 250,000 people have been lifted out while at the same time we have added 800,000 jobs. We are going backwards in a period where many indicators suggest we are not going backwards. The employment numbers are great, of course, but-----

Patricia Ryan (Kildare South, Sinn Fein)
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Returning to Mr. Rogers on what he said about the emptiness that is there and people have nowhere to go. I travel in on the Luas from the Red Cow and the amount of sadness we now see in society that we may not have seen for a few years is building regularly and people are becoming more sad. There are young men who have nothing and nowhere to go. It is a complete and utter failure of policy. It also happens in rural Ireland. Mr. Rogers spoke about Dublin but it is happening in rural areas. Another issue that none of us realise is that we are all only a few weeks away from being homeless. There is a complete and utter failure in policy that needs to be addressed. I thank him for his comments.

Paul Donnelly (Dublin West, Sinn Fein)
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The issue of the pandemic was raised earlier. When the first pandemic payment was announced it was the basic €203 a week. There was absolute uproar from people who argued they cannot be expected to live on this. Very quickly there was a U-turn, a flip-flop, whatever you want to call it, and it went up to €350. That was a classic example of when everybody looked at this and they said, sorry, but they did not have a chance of coping on €203 a week. Also, health outcomes are an important issue when we talk about poverty and deprivation. The Irish Cancer Society produced a heat map which was done in my constituency in Dublin West. If anyone knows Dublin West, the Ongar Road goes right down the middle of it. On one side is Blakestown district electoral division, DED, and on the other side is Castleknock DED. A person who lives in the Blakestown DED is three times more likely to die of cancer than those who live in the Castleknock DED, and twice as likely to die of any other illness, depending on which side of that road he or she lives. Obviously there are exceptions to that rule. However, a person who lives in poverty and deprivation or cannot afford private healthcare, which includes access to a GP and to a consultant, to get those early diagnoses, then obviously the outcomes are really poor. We cannot just talk about standard of living; we are talking about living. That is very important.

On the issue of inflation, it is normally discussed in the context of protecting people against the impact of inflation. Then it is discussed in terms of the excessive demand inflation has caused in the economy. Do the witnesses believe ensuring welfare payments are protected in real terms will drive up inflation? The argument is that if we give more money, then obviously that is going to drive up inflation. Lastly, has the figure of 145,000 for people who are working and in poverty changed in recent years? Has it gone up?

Mr. Ciar?n Nugent:

With regard to the last point, looking at the deprivation figures for workers, they are based on actual consumption. Our risk of poverty indicator is, I will not say random, but it is an arbitrary line in the income distribution - 60% of the median. In a single person household, it is about €17,000. The minimum essential standard of living estimates put it at about 40% higher than that, so there is a gap there. It is a good indicator in some respects but I prefer the deprivation rate. It has been growing as well as a share, obviously, as unemployment has decreased. The biggest group now in deprivation are workers and it is at about 33% or 34%, which equates to about 300,000 people. A couple of years ago that figure was 180,000. There are problems with that indicator as well. It is based on criteria such as whether a person can afford shoes. It used to be whether a person could afford a landline and stuff like that. The fact of the matter is that figure was about 170,000 workers three or four years ago and now it is more than 300,000. That is from SILC, a strong survey based on robust data. More than 300,000 workers cannot afford certain basics. The big indicators driving that last year were the social exclusion indicators such as going out twice a month or having guests over to the house were the big drivers. Again, housing is the big issue driving that on the adequacy side. About 25% of renters basically cannot afford to go out for a drink or a meal every fortnight. That is driving it at the moment. We have seen inflation in restaurants.

Ms Susanne Rogers:

I live on the wrong side of that road. If that is the case, then I hope I will be the exception to the rule. Providing that bit extra for those who have nothing is not going to fuel inflation because this is just being able to buy the pint of milk or, as Mr. Nugent said, to go for a pint or a coffee every fortnight. It is not going to fuel inflation in the same way the pent-up savings during Covid-19 did. Everybody was getting new windows and garden work and so on. I absolutely do not believe it would drive up inflation.

We will be looking at the poverty piece for those in work, which has been pretty static, which, as was said, considering we are at full employment, is quite extraordinary. However, the Central Bank quarterly bulletin for 2024 talks about the gap between employment and actual hours worked. That is starting to diverge, so I do not know whether that has a part in it. I am not sure. One question that was not asked but I might answer anyway relates to one of the pushbacks to this is that if we lock in, then we are stuck with this system. We will have committed to it and we cannot afford it. My pushback on that would be that we lock in tax expenditures and we never revisit them.

Ms Susanne Rogers:

Nat O'Connor has recently published Ireland's Public Spending Explained. It is not possible to give a value for all tax expenditure but the latest reported information is on 81% of the tax breaks, which cost €7.1 billion, which is equivalent to more than 6% of all public spending. That is something the Commission on Taxation and Welfare pushed for.

Ms Susanne Rogers:

We are quite happy to lock in things for the long term and then stand back and leave them. I was hoping that question would come up because I wanted to push back on it but it did not. However, it is something that rears its head.

Dr. Tom McDonnell:

Briefly, in regard to the point on inflation, the €296 million described there is well under 1% of consumption in the economy, which is only one source of the inflation. While there may be a very modest once-off structural impact, it would not have an ongoing, meaningful impact on inflation. Anything that adds demand to the economy has a possibility of creating inflation in some way, but the actual impact of this on inflation would be vanishingly small.