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Benchmarking Social Welfare Rates

The Covid-19 crisis has highlighted a number of aspects of the welfare state and the importance of properly provided and funded public services in countries across the world. Among the many lessons in this country, the crisis has highlighted the importance of the social safety net that is our social welfare system. For many, the experience has also illustrated the substantial challenges of life on a low income; even when that income is considerably higher than the value of core social welfare payments that many unemployed people, pensioners and people with long-standing illness and disabilities struggle with persistently.

Poverty data from the CSO, released in October 2020, demonstrated how adequate social welfare payments are required to prevent and address poverty. Without the social welfare system 41.4 per cent of the Irish population would have been living in poverty in 2019. Such an underlying poverty rate suggests a deeply unequal distribution of direct income. In 2019 social welfare payments reduced the poverty rate by almost 29 percentage points to 12.8 per cent.

Yet, even after the provision of social welfare payments, in 2019 there were almost 630,000 people in Ireland living below the poverty line. Of these almost 190,000 were aged under 18.

The new Commission on Taxation and Welfare is a welcome initiative and Social Justice Ireland looks forward to engaging with their work. We consider it important that the Commission consider and recommend the benchmarking of social welfare rates. A lesson from past experiences of economic recovery and growth is that the weakest in our society get left behind unless welfare increases keep track with increases elsewhere in the economy. Benchmarking minimum rates of social welfare payments to movements in average earnings is therefore an important policy priority.

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 2020 and projections for wage growth in 2021 allows us to compare this benchmark with current welfare rates.

In 2021 the updated value of 27.5 per cent of average weekly earnings equals €222 implying a shortfall of €19 between current minimum social welfare rates (€203) 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 2022 to further increase minimum social welfare rates and commit to converging on a benchmark equivalent to 27.5 per cent of average weekly earnings. We hope the new Commission can establish a pathway to achieving this important policy objective. As a start Budget 2022 should increase minimum social welfare rates by €10 per week.

Read the full text of our Budget Choices 2022 Policy Briefing - Delivering a Fair Recovery - HERE.