Here is the link to the report.
Here is a chart from the report:
Here is an excellent article on the report.
And here is my follow up analysis.
The OECD data was in the range of 2005-2006. Since then:
- Taxes on work in Ireland increased substantially
- Wages have declined in 2007-2008
- Earnings other than wages (overtime, bonuses, commissions) also have fallen
- CPI has dropped in July 5.9% yoy and HICP fell 2.6% yoy
In the mean time,
- Welfare rates have gone up (since January 2009) by 3% nominally, or between 5% and 8% in real terms;
- Indirect benefits rose in real terms, as rents fell off the cliff and not all these savings were passed on to the Exchequer - some of these savings could be easily 're-distributed' between assistance-receiving tenants and the landlords;
- Black /gray cash economy is thriving, providing additional earnings to some welfare recipients; and
- Costs of services to those of us in employment that are free to welfare recipients have gone up, implying a rise of benefit to the welfare recipients.
Our replacement net of tax wage - equalizing the value of benefits obtained by the welfare recipient (in the case of my model - single parent with one kid) to make them even with the wage earner - now stands at €31,102.
The above figure is not inclusive of Income Taxes, Income Levies, PRSI and Health Levy contributions exacted by the state off those working. So let us add this to the numbers above.
- Health levy adds 4% on all earnings below €75,036;
- PRSI levy adds another 4%
- Income tax and Levies (here) - €31,102 after tax is consistent with the pre-tax earnings of €39,870pa
For Self-Employed person:
- Health levy adds 3.333% on all earnings below €75,036;
- PRSI levy adds another 5%.
If we are to recognise that a self-employed person has to cover some of the costs of their work out of pocket, say 25% of the net revenue received in income (a conservative assumption if you need to operate some equipment, run a van etc), a self-employed person working in this country would have to generate around €54,000 in revenue in order to come close to breaking even with a welfare recipient!
Comparatives: Pre-tax average wages by sector (for All workers and for lower grade of P&M Workers):
- Industry: All employees = €42,078 pa (-€981pa relative to a welfare recipient), Production & Manual Workers = €34,507 (-€8,552pa);
- Mining & Quarrying: All = €40,435 pa (-€2,624pa), P&M Workers = €36,878 (-€6,181pa);
- Manufacturing: All = €41,184 pa (-€1,875pa), P&M Workers = €33,675 (-€9.384pa);
- Electricity, Gas & Water Supply, Waste: All = €55,286 pa (+€12,227 pa), P&M Workers = €46,592 pa (+€3,533pa);
- Financial & Insurance Services: All = €56,742 pa (+€13,683pa), P&M Workers = €34,445 pa (-€8,614pa).
- Minimum wage earners €17,992 pa (-€25,068pa worse off working than being on welfare).
Now, there are many studies out there doing international comparisons of pensions and other benefits across the EU.
Majority of them count a particular benefit alone and disregard in-kind payments and other assistance, such as housing allowances, rent supports, bills assistance, lack of apartment maintenance fees, etc. Majority of them disregard the fact that a working family has to pay its own healthcare costs in this country on top of paying taxes to cover our public health services. Or that we pay for child care, while our welfare recipients do not. Or that we pay to commute to work, that we also pay more for our food, because we do not have the luxury of eating all our meals at home. This makes these comparisons extremely stylized.
Another example is Eurostat adjustments of welfare supports for PPP differentials. This is suspect practice because PPP refers to HICP inflation adjustments and exchange rates differentials. However this presents several problems in comparing welfare benefits baskets in Ireland with the rest of EU:
- We have many more non-rates benefits (housing assistance, healthcare cards, etc) not reflected in HICP;
- We have larger relative share of imports in welfare consumer basket of goods than larger countries of the EU, so stronger Euro here buys more for our welfare recipients than it does in the rest of the EU, even after we adjust for nominal exchange rates;
- In most of the EU there are caps and declining scales of benefits. Not in Ireland, where a life-long benefit is available at a flat rate irrespective of the person's ability to work, health status and duration on benefit; and so on.
The real tragedy of Irish welfare system is that we tend to lump together people on unemployment benefits with:
- long-term welfare recipients (often generational ones) who are able-bodied working age adults; and
- long-term disability aid recipients.
Our unemployment assistance rate is below our long term welfare rates. This is farcical. It is an incentive for some to move off unemployment roster and out of the labour force. But it also fails to recognise that people who find themselves in unemployment have some consumption commitments that are reasonably based on their prior income (so these commitments are not some extravagant spending of the past) and have to be met. The long-term social welfare recipients have a steady income instead.
From my point of view, the real problem is that we are paying a number (no one can tell us how big it is) of people who made it their career to milk the taxpayers. I have no problem with helping those in real need of help - the elderly and those with severe disabilities. And I have no problem with providing a safety net for those who pay for it through taxes.
But I have significant issue with seeing perfectly healthy individuals not working, while many people with real disabilities are leading productive lives, ordinary families taking their hard earned cash and sending it the way of those who never intend to contribute to the society.
High cost of social welfare is economic (lost jobs and lost investment due to high tax burden, discouraged younger workers and so on), but first and foremost it is social. The latter manifests itself in a culture of entitlement developed in the mindset of our long term welfare recipients and their advocates.
How many times do we hear that welfare recipients are
- poor (see figures above to show that they are not);
- never gained from the Celtic Tiger (welfare provisions increased between 97% and 110% since 2000 alone);
- neglected by the society (welfare costs have risen from 8% of our GNP in 2000 to over 13% in 2009 and this does not include massive indirect transfers from the private sector through schools allocations, sports grounds, community facilities etc); and
- ignored by private sector growth (there is a deeper question to be asked here in return: Why should someone who never worked in their life be entitled to benefit from the wealth and income created by the sweat and labour of others?)
An argument that NAMA funds can be better spent on social welfare supports is a fallacy, for there are no NAMA funds. We will have to borrow to finance both. If we are to borrow to retain current welfare spending, some €5bn per annum in fresh debt will have to be added to our own and our children's obligations.
A simple math - through 2013, doing nothing on Irish social welfare spending will cost us additional €23bn in debt we will have to pay down in the future. Scared? If unemployment remains at the levels we are seeing today through 2015-2018, this bill will rise to €44-61bn, once interest payments on the requisite bonds are factored in.
That is a disaster on the same scale as NAMA.
Instead of strengthening the fabric of our society through providing a real safety net and real help to those who cannot contribute to this society through work due to age or health reasons, by having this lavish welfare system with a maze of benefits supplied on the unlimited life-long basis, we are actually destroying the moral state of Ireland. That is the real cost of our welfare-as-entitlement industry that is still thriving in this recession.
What should be done?
We need serious reforms of the welfare system in the long run. I will write about this at some point in the future. In the immediate term, we need:
- a cut in welfare rates of 12% for all able-bodied long term welfare recipients, bringing the rates below the unemployment assistance rate;
- a system of two-tier old-age pension: one basic rate for all, set at 1/2 of the current rate, and a second, top-up rate for those who pass means testing (the second rate to be set at 1/2 of the current rate) - on the net, poor pensioners will be guaranteed current level of benefits with no change, while wealthy pensioners will see a cut in their rate of 50%;
- ensuring that no public worker retired on full public pension benefits is in receipt of the old-age pension allowance - at either rate stated above. There should be no double pension allowance;
- a 3% reduction in unemployment benefit to reflect the fall in HICP;
- enforcement of the rent support scheme to extract savings, generated in the private sector on falling rents;
- introduction of co-pay on hospital visits for welfare recipients to reduce use of emergency rooms as their primary care physician access.