Budget 2023 must protect those on Low Incomes

Posted on Friday, 19 August 2022
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Addressing the cost of living crisis must be a key feature of Budget 2023. According to data received from the Central Statistics Office, there are 167,400 employees reporting earning the National Minimum Wage (currently €10.50 per hour) or less. This equates to 7.8 per cent of all employees. The sectors with the highest proportion of employees on low incomes are the Accommodation and food services sector (30.8 per cent as at Q1 2022) and the Wholesale and Retail trade sector (18.9 per cent).


Social Justice Ireland welcomed the recent Government announcement of the introduction of a Living Wage to replace the National Minimum Wage, something we have been calling for for some time. However, we are disappointed that the calculation proposed (60 per cent of Median Income) falls short of what is actually required. The Living Wage Technical Group, of which Social Justice Ireland is a member, set the Living Wage for 2021 at €12.90, higher than the €12.17 rate calculated by Government. We are further disappointed that the Living Wage will not be fully implemented until 2026, four years from now. We note that the Low Pay Commission may be given discretion to introduce the Living Wage faster (or slower) that what is proposed and would urge both Government and the Commission to do just that to offset the impact of inflation on low income households.


While low paid employees are waiting for the introduction of the Living Wage, there are other measures Government could take in Budget 2023.

Supporting Low Paid Workers through the Tax Credits System

Social Justice Ireland calls on Government to increase the PAYE credit and Earned Income credit by €5 per week at a first year cost of €494 million in 2023.

Supporting Low Paid Workers through Refundable Tax Credits

As we has been pointing out for several years, Ireland has a persistent problem with in-work poverty. Each year, when the Central Statistics Office publishes Ireland's updated poverty numbers, there is little change in the number of people in employment who are at risk of poverty. In 2021 - the latest years for which statistics are available - there were approximately 93,000 people with jobs who were living in poverty. Many people assume that a job is an automatic poverty reliever, and this has been a key driver of Government policy, but this is clearly not the case. The job must also be a well-paid job, and recent trends of precarious working practices must surely contribute to a situation where 4.4 per cent of those in employment are still experiencing poverty.

Specific interventions are required to tackle the problem of the ‘working-poor’. Introducing a system of Refundable Tax Credits, at a cost of €140 million in 2023 would allow low income workers who do not earn enough to use their full credit to have the unused portion “refunded”, and support their ability to deal with increasing living costs. Making tax credits refundable would make Ireland’s tax system fairer, address part of the working poor problem, and improve the living standards of a substantial number of people in Ireland.


Benchmarking Social Welfare Rates

Recent analysis published by the Central Statistics Office shows that the current cost of living crisis, while impacting all households, has a disproportionate impact on those on the lowest incomes. Poverty data from the CSO, released in May 2022, demonstrated how adequate social welfare payments are required to prevent and address poverty. Without the social welfare system 38.6 per cent of the Irish population would have been living in poverty in 2021. The social welfare system reduced the poverty rate by 27 percentage points to 11.6 per cent. Such an underlying poverty rate suggests a deeply unequal distribution of direct income. In fact, in 2021, the poorest 20 per cent of the population had less than 10 per cent of the country’s equivalised disposable income, compared to the wealthiest 20 per cent who shared 36.3 per cent.

Yet, even after the provision of social welfare payments, in 2021 there were almost 580,000 people in Ireland living below the poverty line. Of these almost 164,000 were aged under 18. A social welfare payment must provide an adequate safety net to lift people out of poverty. While the current system is progressive, the payment itself is inadequate.

Over a decade ago Budget 2007 benchmarked the minimum social welfare rate at 30 per cent of Gross Average Industrial Earnings (GAIE). Today that figure is equivalent to 27.5 per cent of the average weekly earnings data being collected by the CSO. Applying this benchmark using CSO data for 2021 and projections for wage growth in 2022 allows us to compare this benchmark with current welfare rates.

In 2022 the updated value of 27.5 per cent of average weekly earnings equals €235 implying a shortfall of €27 between current minimum social welfare rates (€208) and this threshold.

Given the importance of this benchmark to the living standards of many in Irish society, and its relevance to anti-poverty commitments, the current deficit highlights a need for Budget 2023 to further increase minimum social welfare rates and commit to converging on a benchmark equivalent to 27.5 per cent of average weekly earnings.

This is even more critical in light of increases to essentials such as rent, energy and heating costs, the risks to food security.

We welcomed the establishment of the Commission on Taxation and Welfare and hope that the Commission can establish a pathway to achieving this important policy objective in advance of the Budget.

As a start Budget 2023 should increase minimum social welfare rates by €20 per week.

Budget Choices 2023 is available to download now.