Critical investment must be a priority in Budget 2023

Posted on Wednesday, 24 August 2022
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Rising costs are affecting everyone in Irish society. We know that those most hurt are households on low incomes, people on low hourly wages or on a fixed income (social welfare payment). These are households in the bottom 20pc of the income distribution. Supporting them requires targeted measures, not one-off payments.

An immediate increase of €20 per week in all core social-welfare payments to support people on fixed incomes, the introduction of refundable tax credits and a commitment to deliver a living wage of €12.90 per hour for those on low pay, must be introduced in Budget 2023.

There is also no denying that the current cost-of-living crisis is having an impact on everyone.

Higher-income households have a buffer against the latest increases. But what of those in the middle – the households who don’t qualify for supports such as the Fuel Allowance, the Working Family Payment or the Back to School Clothing and Footwear Scheme? The Government is right to want to support these households too, but it is going about it the wrong way with tax reliefs.

Under the Government’s plan to introduce a new 30pc tax band, an employee on €40,000 per year would receive an increase of €26 per month or €6 per week – at a cost to the Exchequer of €310m. It is unlikely that the Government will cap this rate at those earning €40,000. Extending it to employees earning up to €50,000 would cost more than €1bn.

So what if we invested this instead? One of the highest costs facing families with young children is childcare. Ireland has the second-highest childcare costs in the EU. Data from the Organisation for Economic Co-operation and Development ( OECD) indicates that a couple on an average wage spends 31pc of that wage on childcare compared to an OECD average of just 13pc.

According to the latest figures from the Early Years Sector Profile Report, the average cost of childcare for families is €810 per month, per child nationally, and varies considerably across the country, with full-day care in the Dún-Laoghaire-Rathdown area of Dublin, costing an average of €1,058 per child.

The Government has indicated that it will extend the current childcare subsidies. However, despite these subsidies being in place, costs to parents continue to rise.

What if, instead of demand-side subsidies and tax cuts, the Government invested part of that €1bn to develop a publicly funded childcare model aimed at eliminating fees for low-income households and dramatically reducing them for middle-income parents?

This is the model used in countries such as Sweden, where childcare costs for a couple on average wage are six times lower than Ireland.

Another key area of concern is housing. The cost of buying a home increased nationally by 14.4pc to May 2022, and private rents increased by 11.2pc in the same period.

Again, this is an area where demand-side subsidies persist in the face of overwhelming evidence that they increase housing costs. And again, the solution here is investment.

The Government’s Housing for All plan pledges €4bn per year to 2030, which includes the Shared Equity Home Loan subsidy, the Help-to-Buy grant for first-time buyers and a target of 90,000 social homes.

The recently launched Shared Equity Home Loan goes so far as to place an additional debt burden on households who cannot afford the full mortgage needed for their home.

The Help-to-Buy Scheme has been shown to disproportionately benefit those who don’t need it, with one-third of those in receipt of the grant having a deposit of more than 80pc of the purchase price.

And the 90,000 social housing units pledged to be delivered by 2030 represent less than three-quarters of the actual need today.

With more than 60,000 social housing tenants renting from the private sector, the most logical solution would be to invest in scaling up the provision of social housing, thereby making private rental properties available for tenants.

This would not only have a positive impact on rent costs, but would be more cost-effective to the State in the medium to long term.

If Budget 2023 is to deliver on the promise of a “cost-of-living Budget”, the Government must put long-term investment before short-term subsidies, potentially saving households hundreds per month in childcare and rent.