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TSG 03

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									                                                                                      TSG 03/10

                                 Department of Social and Family Affairs

                                               2004 Budget Issues


   Introduction
1. The main response to poverty and social exclusion in Ireland in recent years has been
developed through Government policies, social partnership and the wider consultative
process. In this regard, the revised National Anti-Poverty Strategy – Building an Inclusive
Society (NAPS) was published in early 2002. The overall objectives of the revised strategy
are:

      To reduce consistent poverty to 2% among all groups and, ideally, to eliminate it;

      To build an inclusive society; and

      To develop social capital, particularly for disadvantaged communities.

While poverty, particularly consistent poverty, is influenced by a wide variety of factors
including education, labour force status, household composition, health, disabilities and
housing, the vast majority of those in poverty or at risk of poverty are either wholly or partly
dependent of the social welfare system for income support. Accordingly, the NAPS contains
a number of key targets relating to the levels of social welfare rates.

These income adequacy targets are further reflected and re-iterated in the Agreed Programme
for Government (APG) and Sustaining Progress (SP) as well as the National Action Plan
Against Poverty and Social Exclusion (NAPs/incl) submitted to the EU Commission last
July.

Consequently, the factors influencing current DSFA strategy and, in particular, the
formulation of the 2004 DSFA Budget Package are the social welfare commitments
contained in these documents while at the same time having regard to recent economic trends
and to the tightening of Government finances generally. As in previous years, the main costs
arising in the 2004 package will be incurred on increases in the weekly rates of pensions,
other social welfare payments, qualified adult allowances and the monthly rates of Child
Benefit.1

This paper initially recalls the main improvements in Budget 2003. The commitments in
relation to increases in weekly rates of payment are then outlined along with the indicative
cost of these proposals. Child income support is then considered in the context of the current
commitments and the paper goes on to deal, briefly, with other structural reforms of the
social welfare system.

    Budget 2003 - Overview
2.      The 2003 DSFA Budget package amounted to €530 million in a full year. The main
cost elements were:

1
    A separate paper on PRSI will be submitted at a later date.


                                                          1
                    Budget 2003                                             €m (Full Year)
                    Increases in Weekly Rates of Payment                    395
                    Increases in Child Income Support                       115
                    Miscellaneous Improvements                               20
                    Total                                                   530

The main improvements in 2003 in each of the three areas mentioned above are now
outlined: -

      Increases in Weekly Rates of Payment
-     An increase of €10 per week for pensioners on full rates aged 66 and over (65 in the case
      of Retirement and Invalidity Pension).

-     A special additional increase of €1.00, giving a total weekly increase of €11 per week,
      for recipients of Widow/er’s Contributory Pension/Deserted Wife’s Benefit (DWB) aged
      66 or over.

-     An increase of €7.00 per week, for recipients of Invalidity Pension aged under 65,
      Widow/er’s (Contributory) Pension, DWB, Death Benefit Pension, and Carer’s
      Allowance and Disablement Pension (all aged under 66).

-     An increase of €6 per week for all other recipients.

-     An increase of €7.70 per week for contributory pension Qualified Adults (QAAs) aged 66
      years of age or over.

-     A €6.70 per week increase for QAAs aged under 66 of contributory and non-contributory
      Pensioners. 2

-     €4.00 per week increase for all other QAAs.

-     Increases in the weekly income thresholds for FIS of €17 per week.

      Child Income Support
-     The monthly rates of Child Benefit were increased by €8 - in respect of each of the first
      two children and €10 - in respect of the third and subsequent children. These increases
      brought the rates of Child Benefit to €125.60 and €157.30, respectively.

      Miscellaneous Improvements
      These included:

-     an increase in the level of income disregard for Carer’s Allowance.

-     A €100 increase in the Respite Care Grant.

-     The abolition of the assessment of Benefit and Privilege in the UA means test for persons
      aged 29 years and over.

2
    The increase for Invalidity Pension QAAs aged under 66 was €5.00 per week.


                                                      2
-   Funding for the National Awareness Campaign on occupational and personal pensions.

-   Funding for the Rural Transport Initiative.

Accordingly, real increases, compared to the projected CPI for 2003, were provided
generally3. Furthermore, higher levels of increases were provided for those aged 66 years and
over, reflecting the existing commitments in this area.

    Increases in Weekly Rates of Payment
3. The main commitments influencing the formation of the 2004 Budget package in relation
to weekly rates of payment are:

    Pensions
   “We will increase the basic State Pension to at least €200 by 2007.” (APG)

   The Government has decided, having regard to the recommendations in the National
    Pensions Policy Initiative (NPPI) Report to increase social welfare pensions over a 5-10
    year period to 34% of average industrial earnings, that the level of social welfare pension
    will be improved to reach a target level of €200 by 2007 in line with the commitment in
    the Programme for Government. (SP)

    Lowest Rates of Payment
   “To achieve a rate of €150 per week in 2002 terms for the lowest rates of social welfare
    to be met by 2007…….” (NAPS)

   “We will work to generate the resources to achieve our new benchmark level of €150 for
    social welfare payments.” (APG)

   It remains Government policy to meet the target for the lowest social welfare rates and
    appropriate child equivalence levels as set out in the revised NAPS by 2007, on the basis
    set out in the Strategy. During the period of the Agreement, increases in the rates will be
    made in order to achieve this target. (SP)

    Widows and Widowers
   “We will implement improvements in the Widow’s/Widower’s Pension.” (APG)

   Progress will also be made towards implementing the commitments to implementation of
    improvements in Widow(er)'s Pensions. (SP)

   The Minister for Finance’s commitment, announced in Budget 2001, that he intended
    moving the weekly rate payable to recipients of Widow/er’s Contributory Pension aged
    66 and over to the maximum level of Old Age (Contributory) Pension.




3
  Inflation for 2003 is projected to be 3.6% (Dept. of Finance, August 2003). In Budget 2003, the level of
increases for pensioners ranged from 6.6% to 7.6% while non-pensioner rates increased by 4.8% to 6.6%.


                                                       3
    Pensioner QAAs
   “We will introduce a personal entitlement for pensioner spouses currently in receipt of
    the Qualified Adult Allowance (QAA), set at a level of a full Non-Contributory pension.”
    (APG)

   Progress will also be made to increase the level of qualified adult allowance for
    pensioner spouses to the level of the old age (non-contributory) pension. (SP)

    Other QAAs
   The Minister for Finance’s commitment, announced in Budget 2000, that he proposed
    moving the rate of QAAs to 70% of the personal rate (from approximately 60%).

It is a matter for Government to determine the pace at which the various commitments will be
implemented as well as how the benchmark for the lowest level of payment will be updated
in the years ahead. However, it is useful, in the context of Budget 2004, to outline the full
year cost 4 of increasing current social welfare rates to those targeted for 2007. In this regard,
the basis for the indexation of the €150, in 2002 terms, over the years to 2007 is of particular
importance.

The following are examples of the level of increases, required to achieve the 2007 targets:

-   The rate of Old Age Pension would increase by €56 per week with equivalent monetary
    increases for all pensioners aged 66 years or over. 5

-   The rate of contributory pensioner QAA (aged 66 and over) would increase by €78.50 per
    week.6

-   Assuming that the €150 benchmark for the lowest rate of payment is updated to reflect, at
    least, expected price inflation over the period to 2007, the weekly increase required would
    be approximately €47.10.7 It should be noted that adjusting the benchmark by reference to
    price inflation would provide de facto increases in excess of CPI over the period to 2007
    given that the €150 benchmark is over €25 in excess of the 2003 lowest rate of €124.80.

-   The weekly rate of non-pensioner QAAs would have to increase by €37.50 by 2007 if the
    benchmark is updated by reference to prices. It is also assumed that QAA rates would
    reach 70% of the relevant personal rate of payment by 2007.

-   Increases in the FIS thresholds in line with increases in the personal and QAA rate of
    Unemployment Assistance. This is necessary in order to retain the differential between
    income at work and income when unemployed. The actual increase in the thresholds


4
  The cumulative cost of achieving the relevant levels of increases over the period 2004 to 2007 are obviously
much greater and depend on how the achievement of the targets is progressed.
5
  It is assumed, for the purposes of the costings of this approach, that the rate of Widow/er’s (Contributory)
Pension/Deserted Wife’s Benefit (aged 66 and over) is brought up to the OACP rate. The current differential is
€1.50 per week and the cost of the equalisation measure is €5.27m.
6
  The weekly rate of Invalidity Pensioner QAA (aged 66 or over) is currently €8.40 less than that which applies
in the case of OACP/RP. It is assumed that this rate would also reach the pensioner QAA target rate in 2007.
7
  It is assumed that non-pensioner rates of payment which are currently payable at a rate higher than the lowest
rate of payment also increase by the same, respective, monetary amounts over the period to 2007.


                                                       4
    required will be determined by the overall level of increases provided for unemployment
    payments.

The full year estimated cost 8 of the level of increases outlined above is €2,780 million. 9 The
full year cost of a €1 per week increase in the rates of personal payments (and Qualified
Adult Allowances) is contained in Appendix 1.

   Increases in Child Income Support
4. The main commitments influencing the development of policy in the area of child
    income support are as follows:

   “We will complete our announced programme of multi-annual increases in Child Benefit
    and ensure that the combined value of child support is increased in line
    with our commitment under the National Anti-Poverty Strategy. (APG)

   The final phase of the planned multi-annual increases in Child Benefit rates will be
    completed in 2004 and 2005. (SP)

   “To achieve ………………… the appropriate equivalence level of basic child income
    support (i.e. Child Benefit and Child Dependent Allowances combined) to be set at 33%-
    35% of the minimum adult personal rate” (NAPS)

   “We will work to ensure that the number of children living in consistent poverty is
    reduced in line with the National Anti-Poverty Strategy." (APG)

   “In particular, we recognise the tackling of child poverty as a core element of our work.
    (APG)

   Sustaining Progress: The Ending Child Poverty initiative includes a commitment to
    examine “……… the effectiveness of, for example, merging the Child Dependent
    Allowance (CDA) with the Family Income Supplement”.

The Minister for Finance stated in his last Budget speech that “…our central objective is to
support parents in whatever choices they make in looking after their children. Child Benefit
is an important financial support for families with dependant children and a key instrument
for tackling child poverty…I intend to complete the planned increase in Child Benefit in 2004
and 2005”.

Completion of the Child Benefit strategy, as envisaged, would cost €314 million in a full
year 10 and would result in Child Benefit rates of €149.40 and €185.40, respectively.

The dedication of substantial resources to Child Benefit in recent years also represents part of
an on-going objective of reforming income support for children in order to reduce work
disincentives by making child income support more neutral vis-à-vis the employment status
of the parent. This policy focus has been driven, in part, by the recognition that the loss of
Child Dependant Allowances (CDAs) by social welfare recipients on taking up employment

8
  The costings contained in this paper are subject to revision.
9
  The Social Insurance/Social Assistance breakdown is €1,528m and €1,252m, respectively.
10
   The cumulative cost would be greater depending on the level of increase provided in 2004.


                                                       5
can act as a disincentive to taking up available work opportunities. Policy direction in
relation to child income support has therefore, focused on targeting resources towards the
provision of substantial increases in Child Benefit, while maintaining CDA rates at existing
levels.

Since 1994, when the policy of non-indexation of CDAs was instituted, the combined Child
Benefit/CDA payment has increased by nearly three and a half times the rate of inflation. In
terms of tackling work disincentives, the shift towards Child Benefit has been significant.
For instance, in 1994 Child Benefit represented 29% of the total CB/CDA payment for a
four-child family and will reach 70% when the third phase of the current Child Benefit
strategy is completed. In other words, a person will lose only 30% of their child income
support when they move from a welfare payment to employment 11.

The principal advantages of completion of the existing strategy on Child Benefit are:

-    It contributes towards the elimination of child poverty. Per the ESRI, consistent poverty
     among children has halved from 17% in 1997 to 8% in 2000. 12 It is expected that the
     current strategy, begun in 2001, will have a significant effect on moving the figures for
     consistent poverty closer to the 2% target.

-    It helps all parents with the costs of caring for their children while, at the same time,
     offering real choices.

-    Child Benefit is a universal payment which is not taxed or means tested. It therefore, has
     a neutral impact for all parents on the choices parents make regarding entry into paid
     employment and/or how their children are cared for.

On completion of the current strategy, the future direction of child income support will need
to be considered. In this regard, the National Economic and Social Council, in a recent
report,13 welcomed "the substantial increases in Child Benefit which ... has a role as an anti-
poverty measure that is free of disincentive effects". The Council considered that with the
erosion of value of CDAs and the fact that FIS only benefits parents in employment, further
consideration needs to be given to the best package of child income support for low income
households. In particular, the Council recommended that the design of a second tier of
income support for children in poor families be actively studied.

Since then, it has been agreed under the "Ending Child Poverty" special initiative in
Sustaining Progress that, in particular, the possibility of combining FIS and CDAs into one
payment which might be paid to low income families irrespective of their unemployment
status. The issue is being addressed in the context of the arrangements for the special
initiative.

    Other Structural Issues and Reforms
5. In addition to increases in the weekly rates of social welfare payments and improvements
in child income support services, the annual Budget also provides the opportunity to make
other structural changes and reforms to the social welfare code. There were 30 such
improvements in 2003.
11
   Low-income workers with children may also be entitled to FIS.
12
   Monitoring Poverty Trends in Ireland: Results from the 2000 Living in Ireland Survey, ESRI, 2002.
13
   An Investment in Quality: Services, Inclusion and Enterprise, NESC, 2002.


                                                      6
The principal commitments in this area are as follows:

     Carers
   “We will expand the income limits for the Carer’s Allowance so that all those on average
    industrial income can qualify.” (APG)

   “We will implement significant increases in the value of the respite grant for carers.”
    (APG)

   A study to examine the future financing of long-term care in Ireland will be published
    early in 2003. A working group, including relevant interests, will be established to
    examine the strategic policy, cost and service delivery issues associated with the care of
    older people. (SP)

     Pensions
   “We will remove the requirement whereby a person reaching 65 years of age must first
    retire for a period before being able to work and retain a portion of their pension. We
    will, at the same time, examine and seek to remove other financial disincentives for
    people of pension age who want to consider some form of employment. “ (APG)

   A review of the qualifying conditions for Old Age (Contributory) and Retirement
    Pensions, incorporating proposals for the development of the existing Homemaker's
    Scheme, will be published in 2003. (SP)

   “We will put in place an All-Ireland Free Travel scheme for pensioners resident in all
    parts of this island.” (APG)

    Work and Family Life
   The Department of Social and Family Affairs will review the contribution being made by
    the Department's income support system to people reconciling work and family life; and
    The Department of Social and Family Affairs, in consultation with relevant interests, will
    prepare a national programme focusing specifically on the development of family policy
    and supports to mark the 10th Anniversary of the International Year of the Family. (SP)

The cost of miscellaneous improvements in social welfare schemes varies from year to year
depending on the actual improvements made. It is necessary that an appropriate allocation be
available in order to enable ongoing structural change as well as making progress on the
various existing commitments.

The TSG is invited to discuss the content of this paper.




________________________________
Department of Social & Family Affairs

September 2003



                                               7
8
                                             Appendix 1

Indicative Cost of Each €1 increase in Personal and Qualified Adult Rates

                  Payment                          Personal        Qualified   Total
                                                                    Adult
                                                       €m            €m            €m
            Social Insurance Schemes
Old Age (Con) Pension                                  4.92           1.13        6.05
Retirement Pension                                     4.54           1.37        5.91
Widows (Con) Pension                  Under 66         1.72             -         1.72
                                       Over 66         3.64             -         3.64
Deserted Wife's Benefit               Under 66         0.54             -         0.54
                                       Over 66         0.04                       0.04
Invalidity Pension                    Under 66         2.46           0.53        2.99
                                       Over 66         0.33           0.03        0.33
Orphan's (Con) Pension                                 0.05             -         0.05
Death Benefit Pension                                  0.04             -         0.04
Disablement Pension                                    0.22             -         0.22
Disability Benefit                                     2.96           0.36        3.32
Injury Benefit                                         0.07           0.01        0.08
Unemployability Supplement                             0.05           0.01        0.06
Unemployment Benefit                                   3.65           0.38        4.03
Carer's Benefit                                        0.05             -         0.05
Health and Safety Benefit                              0.00           0.00        0.00
            Social Assistance Schemes
Old Age (Non-Con) Pension                              4.53           0.20        4.73
Blind Person's Pension                Under 66         0.08           0.01        0.08
                                       Over 66         0.03           0.00        0.03
Widows (Non-Con) Pension              Under 66         0.13             -         0.13
                                       Over 66         0.69             -         0.69
Deserted Wife's Allowance /
Prisoner's Wife's Allowance           Under 66         0.06             -         0.06
                                       Over 66         0.03             -         0.03
One-Parent Family Payment             Under 66         4.35             -         4.35
                                       Over 66         0.00             -         0.00
Carer's Allowance                     Under 66         1.03             -         1.03
                                       Over 66         0.11             -         0.11
Orphan's (Non-Con) Pension                             0.03             -         0.03
Long-term Unemployment Assistance                      2.74           0.65        3.39
Pre-Retirement Allowance                               0.57           0.20        0.78
Disability Allowance                                   3.69           0.31        4.00
Farm Assist                                            0.46           0.22        0.68
Employment Support Services                            0.73           0.14        0.88
Short-term Unemployment Assistance                     1.35           0.21        1.56
Supplementary Welfare Allowance                        1.59           0.42        2.01
                                        Total          47.46          6.18        53.64




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