NAP/INCL 2003-2005 First Background Report on Ireland for 2004 Professor Mary Daly Queen’s University Belfast, Northern Ireland April 2004
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Summary
Some progress is being made in Ireland towards the implementation of the NAP/incl. In particular Budget 2004 was more welfare oriented and more redistributive than recent budgets and has been estimated to reduce poverty by some 1.5 per cent. It focused primary attention on alleviating the situation of those on the lowest incomes, especially recipients of benefits. In addition, the particular benefit increases that were put in place – founded upon a minimum flatrate increase of €10 a week in all welfare benefits - evince a policy of targeting those on the lowest incomes. So although Budget 2004 was not represented by the government as a poverty oriented budget, in effect it is. It should be noted though that, since the Budget was announced, there have been some cuts in welfare benefits (of some €55million) in line with a general policy stance of prudence in the public finances. In relation to the policy initiatives planned as part of NAP/incl, things appear to be proceeding (although it must be said that the very short time frame since the plan was accepted makes a review of progress somewhat premature). It must be said though that ,thus far anyway, the NAP/incl is not a motivator of policy in its own right (the sense of it not being explicitly in governmental discourse around policy reforms and public expenditure). But one can say that there are aspects of policy that are going in the right direction, even if they are not explicitly targeted in implementing NAP/incl. Institutionally, the Office for Social Inclusion is proceeding to put in place mechanisms, procedures and data which will facilitate the monitoring of the Plan’s implementation. One factor which should be noted, not least because it is an important part of the background to the implementation of NAP/incl, is the deterioration in the industrial relations climate. This is likely to affect the social partnership process, which is currently undertaking the next round of negotiations on the final 18 months of the current national agreement. Social partnership has been a facilitator of anti-poverty and social exclusion measures in Ireland so it is important to monitor developments in regard to it.
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National Report – Ireland Spring 2004
This report is organised into four sections. The first presents the main features of the economic and social background prevailing in Ireland at the present time (i.e., end of March, 2004). This is considered essential because it illuminates the context within which the NAP/incl is being implemented. The remaining sections focus on the progress towards implementing the NAP/incl. We first consider the budgetary situation and in particular the implications of Budget 2004 (announced in December 2003) and the Book of Estimates for the move against poverty and social exclusion. This section also presents an analysis of Budget 2004 from a redistributive and poverty perspective. The next section takes an overview of developments as regards institutional arrangements. The report then goes on to consider the implementation of the main measures and the mobilisation of actors.
1. ECONOMIC AND SOCIAL BACKGROUND
1.1 Economic Situation Economic performance and prospects in Ireland are now more favourable than they were in the last years and the indications are that the Irish economy is adjusting to what is arguably a more sustainable pace of economic growth. GDP is forecast to grow by 3.5 per cent in 2004 and 4.5 per cent in 2005 (ESRI 2004a). While such predicted output growth rates appear modest when compared to earlier periods, they are a little better than those predicted this time last year. While the period of the Celtic Tiger with its double digit growth rates is acknowledged to be over, Ireland is still deemed to have a strong position in fast-growing sectors such as information and communication technology and other high technology industries. This, according to the OECD (2003: 89), may enable potential growth to stabilise at around 5 per cent over the medium term, underpinned also by rapid growth in the supply of prime-aged workers. In terms of other economic indicators, the inflation rate is falling and the unemployment rate is stable or growing slightly. The former has been more problematic than the latter in recent years but it is currently at its lowest level for five years. Inflation (as measured by the harmonised consumer price index) averaged last year at about 4.1 per cent (compared with 4.7 per cent in 2002), and is predicted to moderate to an average of 2.8 per cent in 2004 and 3.1 per cent in 2005 (OECD 2003). The latest figures reveal that the rate of inflation was 1.3 per cent in the month of March, down from 1.7 per cent in the previous month. This represented the seventh successive monthly fall. Note that the avoidance of any state-induced inflation, such as increases in Value
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Added Tax or increased service charges, in Budget 2004 is a key contributor to the falling inflation rate. The latest figures on jobs and unemployment could also be said to be broadly positive. While the unemployment rate, which has been low for the last years, has started to rise, the figures for March suggest stability rather than change. The latest figures record an unemployment rate of 4.6 per cent. The number of redundancies was also down on the previous month, although it must be noted that 2003 saw the highest number of redundancies recorded in 19 years and the figures for January and March of 2004 were in excess of those recorded for the same months last year. The latest Exchequer figures (those for the first quarter of the year published April 2, 2004) show a 15 per cent rise in tax receipts, well ahead of the 10 per cent target. Strength in the property market helped to push up the yield from capital gains tax and stamp duty, with overall tax revenues more than €300 million ahead of the target in the first quarter. While other tax headings are closer to target, they are still well ahead of last year, indicating steady overall economic growth. Income tax receipts are almost 14 per cent up on last year while VAT is 5.6 per cent ahead. While such good results are somewhat unexpected, the government thus far anyway seems poised to continue with its a prudent stance on economic policy. Hence, spending is running below expected levels, with total voted expenditure at end of March coming in €379 below the planned level. The shortfall is particularly marked on the capital side. The Exchequer had a surplus of tax over expenditure in the first quarter of 2004 of €272 million, compared with a deficit of €205 million in the same period last year. Private sector forecasters believe that the government is on target to undershoot its Budget borrowing targets quite comfortably and will head into 2005 in a strong position. This is before account is taken of the as yet unquantified once-off revenue boost from the 15,000 people who have made declarations to the Revenue Commissioners about offshore accounts. 1.2 Social Partnership and Industrial Relations Matters One of the most significant background factors to the NAP/incl process in Ireland is the fact that a successor to the expiring social partnership agreement was agreed in February 2003, thus continuing a 16-year pattern of national agreements and social partnership. Sustaining Progress is scheduled to run for three years but its central element – the pay agreement – lasts for only 18 months. Hence, at the present time the social partners are commencing the negotiation process for the final 18 months of the three-year programme. The current industrial relations context could not be described as favourable, however.
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The process of agreeing Sustaining Progress was difficult and it could be said that the signatories to the programme tended to endorse it because they saw it as the best available rather than a good deal in itself (Irish Times March 27, 2003). Very significant divisions emerged (within interest group constituencies and also across them) during the negotiation and ratification process and events since would suggest that these divisions are deep. Among the trade unions, the divisions that emerged during the negotiation and ratification process and the relatively small margins endorsing agreement1 suggest discontent with the agreement and perhaps also the social partnership process. However, the greatest visible discontent and most public criticism of the agreement came from the voluntary and community sector (which has been since 1997 among the social partners). Some in this sector viewed the agreement as the effective delinking of economic objectives from social goals; the absence of a specific set of objectives on social inclusion was a source of particular criticism on the part of the voluntary and community sector. These developments occasioned the refusal of a number of the representatives of the community and voluntary pillar to endorse the agreement and their withdrawal from social partnership. Since the agreement came into force, the industrial relations situation has deteriorated, especially in the public sector. So far 2004 has seen significant conflict in the postal services, at the stateowned airport company, Aer Rianta, as well as at the national rail and bus company, CIE. Unrest in the transport sector is related to trade union resistance to proposals by the Minister for Transport aimed at restructuring the two organisations. In the case of Aer Rianta, the Minister proposes to break up the company into its three constituent airports (Dublin, Shannon and Cork), while, in relation to CIE, he proposes to open up 25% of the Dublin bus market to outside competition from the private sector. The unions and their members fear that the proposals could lead to a downgrading in terms and conditions of employment and possible job losses. There is further public-sector unrest identifiable also. For example, a postal strike in the Dublin area has just ended at the time of writing. There is also likely to be unrest in the health service. The long awaited report of a National Task Force on Medical Staffing was published in October 2003, making a number of proposals for reforming the Irish health service. If the reforms are enacted even partly - they are likely to impinge on existing power relations in the health service. In view of this, they could spark a number of industrial relations flashpoints, including the following: renegotiating the 'common contract' of hospital consultants; reducing the working hours and overtime of non-consultant hospital doctors (NCHDs) to comply with the requirements of the
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EU Working Time Directive; and the requirement to negotiate change with other healthcare workers.
2. Budgets and Finances
The Budget for 2004 (announced in Dec 2003) is the main indication of plans for public spending for the coming year. Although it nowhere made reference to the NAP/incl, it contained measures that will have a significant impact. It made a total tax/welfare allocation of €917 million, a significant rise on the €716 million allocated in the 2003 budget. The amount spent on welfare benefits was also up, by around €100 million (to €630 million). The figure for tax reductions was €287 million, up from €186 million in 2003. The main welfare change was a minimum flat rate increase of €10 a week in personal payment rates with increases of between €6.60 and €7.70 in the payment for the second qualified adult. Child benefit, the universal payment for children, was increased by between €6 and €8 per child per month but there was no increase in the addition granted to welfare benefit recipients in recognition of their child-rearing burdens (called ‘child dependant allowances’). The income thresholds for Family Income Supplement, the benefit to assist families on low pay, were raised by €28 per week. The key tax change was the increase of €240 per annum in the employee credit. An analysis of the distributive and poverty impacts of the Budget was published by the Combat Poverty Agency in early 2004.2 The analysis shows that Budget 2004 had a progressive redistributive impact. The four lowest deciles were estimated to gain significantly above the norm, from nearly 4 per cent for the poorest decile to 1.5 per cent for the fourth poorest. The richest fare the worst, experiencing a slight drop in income compared to a neutral budget. In line with this, those receiving welfare benefits did best, with the single unemployed the greatest beneficiary of Budget 2004. The retired and lone parents also benefited. However, in a departure from recent policy, there was no prioritising of households with children; these fared no better than those without children. This aside, when compared to recent budgets, that of 2004 emerges very positively, mainly because of the scale of the resources directed to those on low income. For example, the tax/welfare packages during the period 1998 to 2002 delivered average annual gains of up to 2 per cent (four times that of Budget 2004) but these gains were concentrated among middle and higher income groups. In terms of poverty alleviation, the Budget also performed rather well. For example at the 50% relative income poverty threshold, its effect is
The methodology used was to compare the budget to a distributionally neutral one, whereby all sectors of the population share equally in the benefits of economic growth. The benchmark used was to index tax and welfare increases in line with wage growth. 6
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estimated to reduce poverty by 1.5 per cent. The scale of the fall at the 60 and 70 per cent thresholds is considerably less (at 0.6 and 0.3 per cent respectively). The main reason why Budget 2004 was more redistributive is that it allocated far more resources to welfare improvements as against tax deductions. In other words it had a social welfare rather than a taxation focus. In addition the positive outcome for low-income households was enhanced by the structure of the welfare package, in particular the flat-rate increase of €10 for all individual welfare recipients. This is a big change from recent budgets which have tended to favour particular sectors of the benefit population, especially pensioners. In addition, while the overall tax package was less than required to prevent a rise in the tax burden, the decision to concentrate resources on increasing the employee tax credit benefited lower income taxpayers at the expense of the better off. On the negative side, the failure to significantly increase child benefit is important and should be noted. It is mainly for this reason that the budget failed to significantly improve the situation of families with children. Overall, then, Budget 2004 is a step in the right direction from a NAP/incl perspective. However while the Budget 2004 is to be praised from a poverty perspective, its positive effects are likely to be offset by some welfare cuts (to the value of €55 million) announced in the Book of Estimates for 2004. These reductions were targeted at supplementary payments for lowincome households with additional needs, such as private housing rents, dietary supplements and childcare. The latest information available indicates that the community and voluntary pillar of social partners has secured Ministerial support for a process under social partnership to review the implementation of the cuts so as to protect those most at risk. Other cuts were also planned, especially in regard to discontinuing some additional benefits to recipients of widows and lone parent payments.3 However following intense lobbying by the voluntary and community organisations and a lot of negative media interest, the Minister undertook a review and decided not to proceed with the latter (on the grounds that they would lead to hardship).
3. Institutional Arrangements
In this regard, there is little new to report.
It was proposed to discontinue the arrangements whereby recipients of these benefits can in certain circumstances also receive a half-rate payment of disability, unemployment and other related benefits 7
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One matter of relevance is that the Office for Social Inclusion, the unit charged with facilitating and supporting the implementation of the NAP/incl and the National Anti-Poverty Strategy, has recently published a business plan for 2004. This document is notable mainly because it sets out a series of targets. These targets relate to a number of areas and are phased throughout the year. In the first instance, the Office plans to finalise templates for monitoring the implementation of the NAP/incl, to agree an initial set of indicators with relevant Departments and bodies, to complete a scoping exercise for the data strategy and to have the policy position of the Office for Social Inclusion developed in time for the Spring monitoring committees. All of these were targeted to be achieved for March 2004. At this stage it is not possible to ascertain exactly whether they have been achieved. When contacted the relevant officials said that they were in process, and drew attention to the huge workload associated with the EU Presidency. Among the targets set for later in the year are the successful holding of the relevant EU presidency conferences and the completion of a communications’ strategy (by May).
4. Implementation of Measures and Progress towards Targets
An important part of the context here is the extent of poverty. When measured in terms of consistent poverty (using a combined relative income and deprivation measure), the latest research suggests that the rate of consistent poverty continues to fall (ESRI 2003). The consistent poverty rate in 2001 was 5.2 per cent, down from 15.1 per cent in 1994 and 6.2 per cent in 2000. With a NAP/incl target rate of below 2 per cent (no date given), it can be said that policy and trends are proceeding in the right direction. In addition consistent poverty among children has also fallen, down from 17 per cent in 1997 to 6.5 per cent in 2001. However, the findings on relative income poverty are not so favourable: the poverty rate for households, based on the 50 percent mean income threshold was 23.8 per cent (up from 23.7 per cent in 2000 and 18.6 per cent in 1994). These figures generally conform those presented in the JIR (2003: 15) which show Ireland in a negative light. 4.1 Labour Market Integration and Well-being The latest research available suggests that the number of households where no adult of working age is employed is falling significantly (from 22 per cent in 1994 to 14 per cent in 2000) (ESRI: 2004b). This brings the Irish rate to the EU average. The decline in joblessness was especially strong among households with children. In 1994 27 per cent of children lived in jobless households compared with 9 per cent in 2000.
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In relation to active labour market programmes, over the past few years there has been a shift in emphasis from the provision of employment-creation schemes towards measures that have a greater focus on employability. In addition, the numbers of people involved in Community Enterprise (CE) schemes have been reduced from a high of 40,000 per year in 1999 to 20,000 at the end of 2003 to be retained at that level in 2004. . This whole area of labour market policy has been subject to considerable debate and review. For example a review of all active labour market programmes has just been published (Indecon 2002) and a consultation process has been entered into with the social partners. 4 While the review generally concludes that this is and should remain an important domain of policy, a key aspect of the recommendations is on the one hand a continuation of the policy to reduce the numbers of people on active labour market programmes and the reorientation of the schemes to ensure that the focus will be on the most marginalised and disadvantaged group. In addition it is recommended that the emphasis be placed firmly on training and progression, including the enhancement of ‘progression pathways’ between education, training and the workplace. Apart from this, a cross-departmental group is considering options for the future of the Community Employment schemes (the most important constituent of active labour market programmes), taking account of the strong ‘community services dimension’ which such schemes have acquired over time. In regard to income support for those in employment, the national minimum wage was increased to €7 an hour on 1 February as promised in NAP/incl. 4.2 Adequacy of Welfare Payments As outlined above, Budget 2004 is also positive in regard to benefit adequacy, especially in its granting of an across the board increase of €10 to the lowest welfare benefits. This brings the basic welfare payment to €134.80 and keeps the government on target to meet its goal of an inflation-adjusted €150 minimum welfare payment by 2007. In addition, by keeping inflation low the impact of the €10 increase is maximised. With regard to the targets on pension – to raise the payment to €200 by 2007 – there is still a long way to go as the rates (inclusive of the recent increases) now vary from €154 to €173.70. In regard to child poverty for which the target is to reduce the proportion of children who are consistently poor to below 2 per cent by 2007, Budget 2004 did not make significant progress.
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While the review was completed in 2002, it was only made available on the web on March 8, 2004. 9
The changes introduced in Budget 2004 (increases of some 4.8% in the lower rate and 5.1% in the higher rate) marked the beginning of the final phase of the Child Benefit investment package initiated in 2001, a package which was to have been completed by Budget 2003. The situation in regard to reducing child poverty is also compounded by the failure to change the second tier of child income support - child dependant allowances (paid to welfare recipients in recognition of their child-rearing burdens). These, arguably a vital element in the fight against child poverty (because they are received by the poorest households and are an ideal complement to the universal child benefits), have been frozen since 1994, which represents an effective devaluation of a quarter It is perhaps worth noting that a commitment has beengiven in Sustaining progress to review the CDAs and to consider, for example, the question of merging CDAs with the Family Income Supplement – the aim being to create a more efficient targeted second tier of child income support. 4.3 Access to Services Here, targets were enunciated in relation to housing and accommodation, homelessness, health, education, In relation to housing and accommodation, the targets are mainly long-term (relating to the National Development Plan they have a time frame of 2000 to 2006. The latest figures suggest that house completions were up 19 per cent in 2003, with some 69,000 new units built last year. This level of building needs to be sustained if the government is to meet target for the 20002010 period of 500,000 new units). There are some other points to note as well. Firstly, waiting lists for public and social housing have never been longer. Secondly, investment in social housing has fallen in recent years. The government plans an increase in local authority housing starts for 2004, to 5,000 units. This level would seem to be inadequate given that the target is for 41,500 such units between 2000 and 2006. One recently announced development at a policy level is that the local authorities are to be asked to prepare national action plans on social and affordable housing. These plans should make clear the authority’s strategy to deliver the full range of social and affordable housing programmes and supporting measures for the period 2004 to 2008. The plans are to be submitted to the Minister by the end of May and agreed by the Autumn of this year.
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In relation to homelessness, arrangements are underway at central level to review the operation of the Homelessness Strategies with a view to evaluating the progress made in implementing them and to make recommendations to promote further progress. In relation to education, and early school leaving in particular, there is a very significant programme, the schools completion programme, underway here. It aims to develop local strategies to ensure maximum participation in the educational system and essentially involves schools developing retention strategies. In addition, the National Educational Welfare Board (an independent statutory body established in 2002) is slowly establishing itself. For the first time in 2003, for example, the Board had a national service for children at risk of non-attendance at school and for following up urgent cases. Furthermore, there is a fairly active committee on educational disadvantage which has made a number of submissions in recent months. In relation to health, the targets set related to the gaps in premature mortality (for circulatory diseases, cancers, injuries and poisoning between the lowest and highest socio-economic groups and reduce the gaps between socio-economic groups of low birthweight rates. There is no known new information available on the achievement of these targets. 4.4 Vulnerable Groups There is nothing to report here.
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References Combat Poverty Agency, (2004) Analysis of Budget 2004 Action on Poverty Today Supplement, Dublin: Combat Poverty Agency. ESRI (2003) Monitoring Poverty Trends in Ireland: Results from the 2001 Living in Ireland Survey, Dublin: Economic and Social Research Institute. ESRI (2004a) Quarterly Economic Commentary Spring 2004, Dublin: Economic and Social Research Institute. ESRI (2004b) Work-Poor Households: The implications of changing household employment patterns, Dublin: Economic and Social Research Institute. Indecon International Economic Consultants (2002), Review of Active Labour Market Programmes, Dublin: Department of Enterprise, Trade and Enterprise (available at: http://www.entemp.ie/lfd/reviewactivelabourmarketprogs.htm). OECD (2003) Economic Outlook Number 74, Paris: OECD.
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