Budget day! So let’s see if they slim state provision… because – after all – the market has been such a success… October 14, 2008Posted by WorldbyStorm in Economics, Irish Politics, Social Policy.
There’s a slow drumbeat on the right. We’ve heard it from the Chairman of Anglo Irish Bank and now we read it in Noel Whelan’s in the Irish Times onpiece on Saturday. It is this: that the state in the contemporary hairshirt/tightening belt mode must of necessity begin to cut services and state provision.
Well, I guess one could argue that seeing as the state has become the life-support mechanism of choice for the global and local financial sector it is little wonder that those who benefit from this life-support, or those who have been cheerleaders for the sector, do their damnedest to ensure every last penny goes to them and minimise the risk of any going to the rest of the society. For Whelan writes…
If child benefit is left unreformed the Government will have missed an opportunity to use the payment more effectively as a means of tackling relative poverty. Taking child benefit away from more wealthy households, or at least asking them to pay tax on it, would be a prudent and progressive step.
Child benefit is arguably the most socially regressive payment made in our social welfare system, not because child benefit is a bad thing but because paying it to all families with children, irrespective of household income, wastes resources which could be better utilised if targeted at families most in need. All taxpayers – poor and wealthy alike – are funding a payment which is universally provided tax free to all, irrespective of means.
Here’s the thing. As noted by ejh the other day, it is financially more efficient to disburse payments such as child benefit to all rather than to pick and choose. Or as he put it:
If [paid universally], then counter-intuitive though it may seem, [child benefit] is extremely efficient. Because while of course lots of people get it who don’t need it, the absence of any need to check and measure income (and the relatively low level of fraud) keep administration costs down to an absolute minimum: almost the entire budget goes on actually paying out benefit. Whereas when I used to work in social security in the UK, something like two-thirds of the budget went on staffing costs.
But even putting the efficiency argument aside I’d suggest that such payments are important in building social solidarity and preventing the ghettoisation of welfare. As importantly the issue of income for the state can be addressed by increasing marginally taxes on higher rate incomes. Is this inequitable, well perhaps only for those who don’t have children. But, since we all live in an society and an economy that depends upon proper provision of services then it such taxes and such provisions go towards engendering social solidarity in both a gestural and a pragmatic fashion. And solidarity is built by ensuring that people recognise both the negatives (in the sense of responsibilities) and positives (in the sense of provisions) of the state and recognising that they impact upon them. Another area where this is evident is in the area of redundancy payments and benefit during unemployment. The payment in during employment produces a payment out when necessary. And the sense of a broad social compact/contract where no one stands alone in hard times – or, as with child benefit, better times – is fundamental to this.
The significant increases in child benefit over the last decade makes it more regressive. In 1997 the child benefit rate for a first child was €38.10; it is now €166, representing a four-fold increase in a decade.
Got to say, I wonder is he using the term ‘regressive’ entirely appropriately in this discussion. The figures are somewhat marginal in terms of those on higher salaries (although I’d like to see what the figures are in terms of inflation from 1997 and 2008). But I’m not sure that per se it is ‘regressive’. Those on lower incomes who receive it don’t receive a lesser benefit from getting it than those on higher ones who get it – and I note that he’s not making the argument that by shedding middle to higher income earners from receiving it he would then see the funds channeled to those on the lower brackets. Nor, due to it’s already low rate does it confer a massive advantage to those on higher incomes.
Still, Garret Fitzgerald adds an unlikely voice to this clamour (although why he bothers when his column actually argues against the recent enough drop in the top rate of tax from 42 to 41% is an intriguing point):
Next, spending cuts must as far as possible spare the less-well-off. In so far as such cuts are made they should concentrate on forms of expenditure that are regressive – such as child benefit payments to higher income groups.
Some social democrat he. But even if we accept its use, there seems to be something a bit petty about the concentration on it.
And Whelan continues…
Since April 1st, 2006, the Government has introduced a new €1,000-a-year early childcare supplement payment for parents with children under six. This four-fold increase in child benefit and the new early childcare supplement payment have had a dramatic impact on lower-income households and have led to a significant fall in absolute child poverty rates.
However, the overall effect of these increases has been to exacerbate inequality.
Households currently in receipt of child benefit stretch across a spectrum of need. At one end are households on or about the poverty line who rely on the child benefit payment to provide basic necessities.
These parents wait anxiously for the first Tuesday of each month when one of them – almost always the mother – will queue early outside the post office to collect the payment and maybe use it to pay an overdue utility bill or buy saving stamps for the next utility bill.
The ‘deserving’ poor, one assumes, according to his lights.
For households who are a little better off, the child benefits means they can do a “big shop”, fund a monthly family treat or put some money aside for seasonal costs like back to school or Christmas. Nobody could argue for a cut in child benefit for these families. The largest group of households receiving child benefit are at the middle of the needs spectrum. For this group, if children are still of pre-school age, the monthly payment goes towards childcare costs or covers some of the shortfall in the family income. If children are older, it helps with the many incidental costs associated with rearing and educating teenagers or younger children. The bulk of these households should continue to receive child benefit but could be asked to pay tax on it.
The not so deserving, but not quite undeserving less poor, or almost wealthy. How good of him.
There is, however, another large group of recipient households for whom child benefit is surplus to immediate requirements and where it is akin to pocket money for small luxuries or is simply transferred into savings accounts for future education expenses or some future indulgence for the child.
He may well be right. But what is his evidence for this?
The results of a 500-sample national survey published by Bank of Ireland two months ago suggested that 35 per cent of those receiving child benefit do not spend it in the month they receive it. Apparently, of the 35 per cent who save the child benefit, 55 per cent use a deposit savings account, while 45 per cent use a long-term investment plan.
There’s a problem though…
Even allowing for the fact that the survey was internet-based, these are astonishing figures and they are supported by anecdotal evidence.
“Anecdotal evidence” – eh? Is that the best he can come up with. Note too how vague and imprecise his approach is. What exactly is he proposing, how does he determine the cut-off point between these groups. Are we to take it that the ‘indulgent’ group will make itself readily known and be clearly differentiated from the ‘big shop’ group. Is it a tax issue? Those who tip into the higher rate are out – or are they in?
And if you think it’s difficult to decide that, and he hasn’t bothered to, then spare some sympathy for government officials who, as the Irish Times reported in August…
…have spent several years trying to plan a new child benefit payment which would be targeted at low-income families and those reliant on social welfare. However, briefing material prepared for Minister for Social and Family Affairs Mary Hanafin shows progress on the issue appears to have stalled due to difficulties in identifying families who are most at risk of poverty.
Now, warning bells go off in my mind when I read about such ‘new’ child benefits – presumably a second tier that might eventually supplant and replace the original tier.
And Hanafin seems to point to such…
In an interview with this newspaper, Ms Hanafin acknowledged the difficulties in planning a second tier child benefit payment.
“The question is how do you merge a universal payment, like child benefit, with a targeted payment and ensure it goes to the right people. I don’t know yet, is the honest answer.” Ms Hanafin said changes were needed to the Family Income Supplement in order to increase the uptake rate.
“There’s a lot to be said for streamlining it, ensuring that it’s simplified and goes to the people who need it.”
But if the best and the brightest can’t work out a schema to identify those in direst need what hope for those in much lesser need? Which makes Whelans claims ring just a bit hollow. Or perhaps, it might be best to retain the current system in situ.
And also let’s be honest. I can think of a number of other reasons for increasing inequalities in society and they have little or nothing to do with the relatively low rates of child benefit, universal or not.
For example. The end of College fees (although let’s note the sleight of hand as regards Registration fees) opened up considerable amounts of income that was diverted to a private education system that is… funded in many aspects by the state! Remove that funding and let’s see where the monies go. Or what of the MED 1, which I have referred to previously, which embeds inequity in health expenditure (and I’ve benefited from that myself)? And the list continues.
Yet oddly neither he nor the Anglo Irish Bank head refer to them. Not least because to fix them requires serious change of a sort they will not countenance. Taking on the private education sector seems to be anathema to them, for a start.
Mary Freehill of the Labour Party writes in yesterday’s Irish Times that:
I am reminded of much tougher economic times when we in the Labour Women’s National Council advised Brendan Corish, then minister for health, against such a proposal.
Our logic was that while a family might appear to be well off, in some cases – because of alcoholism, gambling, or simple bullying, for instance – the stay-at-home parent, usually the mother, has no access to the family income. This is why child benefit has never been touched, despite the occasional suggestion that means-testing it would be fairer, regardless of the associated administrative cost.
A much more effective way to save money and the dignity of an unknown number of parents with children is to fairly tax the highest earners by abolishing their perks and tax shelters.
I’m not entirely sold on the ‘dignity’ argument, but again, consider the ‘associated administrative costs’.
Still, none of this worries Whelan who continues:
Child benefit recipients who collect at the post office rather than opt for direct lodgement to an account can collect it anytime within three months. Those involved in paying it out estimate that as many as one fifth of recipients collect payment once every three months, which says a lot about whether they need the payment.
One estimate suggests that a child whose total child benefit every month is lodged into a long-term savings account for the next 18 years would end up with pot of €60,000 when they reach adulthood.
Saving is a habit which should be encouraged but there is no justification in these stringent times for the general taxpayer funding contributions to the future college funds or gap year trips of such children.
If their family’s disposal income is already such that they can forgo the child benefit payment each month then they are likely to be able to afford college.
Child benefit is a good idea for many reasons. It is a useful weapon against child poverty and an effective means of subsidising the costs associated with childcare. It is also redistributive within the household since in most cases it is paid to the mother, who in many instances is not earning.
However, as an untaxed direct payment paid irrespective of family income size, it is regressive. It would be a pity if fear of a political backlash from the middle classes again scares the Government off reforming child benefit.
And there we have it. The ideology is one of a new slimmed down state. They are friendly, overly so as the current plans would seem to indicate, to the financial sector and willing to underwrite with little oversight their bad financial decisions (out of our taxes) while at the same time cutting provisions, particularly universal ones.
It’s an almost perfect slicing of the Gordian knot that the economic right finds itself in after the catastrophic events of the last Summer. A sort of bait and switch, if you will. Don’t look at the crushing disaster that has enveloped our chosen form of capitalism, they say, look at this egregious waste of funds. But one that is being played on us.
I noted the term solidarity on Friday in reference to unemployment, but solidarity is much broader. It requires that people think of themselves not as individuals where the state parsimoniously disburses largesse dependent upon inevitably changeable criteria, but as citizens within a society with responsibilities – and yes, benefits – and a necessity to express solidarity and see that solidarity expressed by the state.
But note that the game is given away when we analyse the figures that Whelan deals with. We won’t hear a complaint from him about income levies (as supposedly about to be unleashed in the Budget) when that income is being levied – in effect – for the banks. Despite the fact that it will bring in a greater amount of monies than a straight increase in taxation rates. Nor will we hear arguments to add to those levies in order to defray social expenditure. What we will hear, and I’d predict we’ll hear a lot more in coming months, is the continuing attempt to undermine the the solidarity role of the state. Nor, do we hear the most obvious answer to this supposed problem, if one wishes to pull the extra money away from the plutocrats – an increase in taxes for those on higher income levels near equal to the amount disbursed as child benefit. Why not?
But look. In such instances it’s always worth testing these propositions against some research. Rather than Whelan’s ‘anecdotal’ evidence and an internet survey. And if one uses the most impressive Google Book Search, one will find intriguing evidence that contradicts his point and actually demonstrates
For example. Consider Children, Changing Familes an Welfare States, edited by Jane Lewis, and available to view in part here.
In an essay by Fran Bennett entitled “Paying for children: current issues and implications of policy debates” we read that:
Benefits [in Poland and Hungary in 1990 – 2002] were concentrated on low-income families which softened some of the shocks associated with transition, but this could have adverse effects on work incentives, and it is also described as bringing about a shift in status for claimants ‘from holder of personal rights to petitioners of the state’ (Fultz and Steinhilber 2004, p.260). Now, however, Hungary at least is planning to change its system of cash transfers and fiscal support for children in the opposite direction (Ferge et al. 2005). The reform envisages the amalgamation of three different systems of support for children – universal family allowances, means tested child assistance and tax allowances – into one, universal, benefit. The change would, according to these writers ‘make the system more predictable, strengthen social rights and would abolish some inequalities’.
Hmmm… so let’s get this right. It may be that tackling child poverty requires universal benefits, even if that does lead to some inequitable outcomes.
Which seems to be the conclusion of the following.
Introducing universal child benefit schemes (as in the UK, Denmark and Sweden) in Southern European countries would have a considerable impact on child poverty, in part because currently many children in low income families receive little or no support….Sutherland (2005) finds that in one set of European countries with low child poverty rates, child contingent payments make a large contribution to poverty reduction – and these are mainly universal benefits and tax concessions. Those countries ‘targeting’ income only to children in poverty, on the other hand, have similar levels of spending, but higher child poverty rates.
And here’s a thing. Unlike Whelan’s claims about ‘regressive’ child benefit in Ireland, in a further essay in the book, Jonathan Bradshaw examines “Child Benefit packages in 15 countries in 2004”. Now, 2004 may well appear to belong to a different era before the heady days of the financial crash, but the comparative aspects have at least some utility.
He writes that:
“Austria, Belgium and Japan all have slightly regressive elements to their package which increase with earnings…”. Interesting. For he argues that…”… [when] we turn to compare the level of packages…a picture of how the whole child benefit package varies with earnings for the same family type (a couple with two school-age children)… Australia, Iceland and New Zealand pay no child benefit package to the best off family and Canada pays very little. However Australia, Ireland and the UK are more generous to the low earning family…”
Now, it could be that Bradshaw and Fran Bennett know nothing about these issues. But that seems unlikely seeing as he is Professor of Social Policy and Head of the Department of Social Policy and Social Work at the University of York and she is a senior research fellow at the Department of Social Policy and Social Work, at the University of Oxford. And Jane Lewis may well be a neophyte as regards such matters, but that too seems unlikely since she is Professor of Social Policy at the LSE.
Granted they may – although I have no evidence to support this contention – be a bunch of raving statists, but… Unlike Noel Whelan who attempts to channel debate on this issue with what looks like little more than some musings written on the back of an envelope, an internet poll by a vested interest and ‘anecdote’, they do have the vast qualification of examining areas of social policy in detail and in such a manner as to be able to make some tentative comparisons about what works and what doesn’t. Nor are they the only researchers in this area and I’m sure I could find other work that comes to different conclusions.
Or perhaps calling on a bunch of mainly, but not exclusively, British academics is too esoteric an approach. So, let’s look at a report issued in 2005 by the National Economic and Social Council entitled: The Development of the Welfare State. You can download it here, but I’ve done some of the heavy lifting on this one, and can I assure you that this cogently addresses the varying models extant in our contemporary somewhat welfare-like state, from targeted approaches through residual (targeted), insurance (tax and social insurance) to universal and considers the positive and negative aspects of the various models. Unsurprisingly it comes down on a steady as she goes approach, or as it modishly puts it ‘a transformed and refined public
administration is instrumental in enabling sets of actors to form networked systems through which the needed levels, quality, diversity and responsiveness of services are forthcoming’. Fine, whatever. But its analysis of targeting is fascinating because it raises issues addressed above.
Other considerations, however, suggest that Ireland’s welfare state has reached — or surpassed — the limit for relying on means-tested supports.
• Throughout the 1990s, the proportion of social spending (cash transfers and expenditure on services) in Ireland that was means-tested was three times the average for the EU-15 (European Commission, 2002).
• Means-tested benefits can entail high marginal tax-plus-benefit-withdrawalrates with significant disincentive effects for their recipients; this extends to their spouses/partners as means-testing is based on household means.
• As the mainstream of the population becomes more heavily focussed on employment, there may be a decline in voters’ willingness to fund income transfers to people of working age.7 This would make it easier for the political system to allow the relative living standards of this group decline.
• The discretionary and unpredictable way in which payment levels and other parameters (earnings disregards, etc.) of social assistance payments are adjusted can increase frustration with,rather than appreciation of, the system. Meanstested social supports can be easy targets when fiscal economies are urgently needed as their adjustment downwards occasions less formidable political resistance than alterations to programmes from which wide strata in the population benefit.
• There is evidence that dependency survives, if not thrives, in Ireland’s residual welfare arrangements. A security is attached to benefit receipt which, though providing a lower income, does not attach to the potential market earnings of low skilled people. Several categorical payments to people of working-age are, effectively, of indefinite duration.
• Targeted schemes (combating educational disadvantage, area disadvantage, focussed on specific groups, etc.) have multiplied leading to growing difficulties in ensuring their effective co-ordination, proper evaluation and value for money. New schemes are introduced more easily than low-achieving ones are identified and discontinued, or mainstream programmes altered in the light of learning from high-achieving ones.
And it concludes…
If targeting cash benefits and services were, indeed, the best answer to deprivation in Ireland, it would be reasonable to expect much less poverty than is currently the case. Whether in providing cash transfers or services, however, targeting can be seen as part of the problem. For example, efficiency in ensuring that taxpayers’ money is received only where categorical conditions are fully complied with and assessable household income is below a certain threshold requires active monitoring and supervision of recipients’ circumstances. Perversely, this continues to distance the households in question from the rest of the community. Their reduction in status is not ameliorated by rises in the real value of the cash transfers they receive. Public bodies find it particularly difficult to discharge their statutory responsibilities to people on low incomes and/or to those residing in areas demarcated as disadvantaged; a dynamic can set in that results in ‘poor services for poor people’unless imaginative and highly resourced efforts are undertaken to arrest it. It is notable how access to public services, at specified standards of services, has emerged as a strong objective in both Ireland’s Anti-Poverty Strategy and National Disability Strategy. When the administration and delivery of services for low income groups are carried out by area-based or specialist organisations in the voluntary and community sector, stigma may be reduced and service quality improved but other challenges can arise. People may become ‘locked in’ to their deprived neighbourhoods; the outcomes being sought for individuals may be vague; the transparency and accountability with which resources are used may be below the standards of the public and private sectors.
It is a sobering observation that, despite the huge economic and social changes which Ireland has experienced in recent decades, there has been little improvement in relative social mobility. While the need undoubtedly remains to continue with an extensive set of targeted programmes, their contribution to empowering people and restoring equality of opportunity will need to be stronger. The issue of resources will always be important but is seldom as paramount as the challenge of understanding the complex family, peer, neighbourhood, ethnic group and intergenerational dynamics which contribute to shaping people’s aspirations, expectations, values and beliefs. Ireland’s targeted programmes for tackling disadvantage need to be informed by deeper contextual and qualitative research into the causes and transmission processes giving deprivation its tenacity and resilience.
Now again, there is some divergence of viewpoints on this issue, but if even the cautious analysis of the NESC is that the record is pretty mixed as regards targeting then it surely requires a certain hesitancy on the part of those who make exaggerated claims as to the efficacy of targeting and other instruments of social policy. And this is not to dismiss those other viewpoints at all although the jury is so far out I can’t see them coming back in any time soon.
But that’s not the point of this post which is to suggest that the level of debate in our media is such that the most ill or uninformed comment from our captains of (not even part-nationalised, like the UK) financial industry and political commentators are given inches of page space in print and on screen. With no supporting evidence at all to back up their assertions.
And of course, all this presupposes that what Whelan and the chair of A I B want our societies that function well, rather than to undermine the entirety of the notion of social provision. I’m presuming that it’s the former they champion…
And as to what we will see today? Well reading the following from last month from Mary Hanafin I can’t say I’m confident (and nor am I confident when we see how mild and supportive of the banking sector the current state interventions are compared and contrasted even with that hot-bed of red revolution, the British Labour Party government across the Irish Sea).
Ms Hanafin said it was vital that social welfare spending, expected to be more than €17 billion in 2008, is allocated to those who are most in need of support.
“We have gone some way to achieving that aim: each week, over 1 million people receive a payment from the Department of Social and Family Affairs in respect of 1.5 million beneficiaries and almost 580,000 families receive a monthly Child Benefit payment, which is paid in respect of 1.1 million children,” she said.
Maybe Child Benefit is the third rail of Irish politics… politically untouchable, much as Medicare is in the US. I certainly hope so. I guess we’re about to find out.