Budget Perspectives 2013 Conference

The ESRI "Budget Perspectives 2013" Conference is on Thursday 27 September 2012, from 08.30 to 13.00, at the ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2. The Budget Perspectives Conference has become an established part of public debate about budgetary issues in Ireland. The 15th Conference will examine issues of interest from both macroeconomic and microeconomic standpoints. PROGRAMME 08.30 Registration and coffee 09.00 Welcome: Frances Ruane, Director, ESRI Session 1 Chair: Robert Watt, Dept of Public Expenditure and Reform 09.05 Macroeconomic Context for Budget 2013, David Duffy (ESRI) 09.30 Fiscal Policy for 2013 and Beyond, John FitzGerald (ESRI) 10.10 Discussion 10.30 Tea/Coffee Session 2 Chair: Frances Ruane, ESRI 11.00 Simplifying Benefits: Learning from UK Experience, Mike Brewer (Institute of Social and Economic Research), James Browne and Wenchao Jin (Institute of Fiscal Studies) 11.40 Work Incentives: New Evidence for Ireland, Tim Callan, Claire Keane, Michael Savage, John R. Walsh and Kevin Timoney (ESRI) 12.20 Discussion 12.45 Close Please find below short summaries of three papers to be presented at the Conference, with contact details for the appropriate author. Conference papers and presentation slides will be available to download from our website on the day of the event. For further information on the Conference please visit our website. Members of the Media are invited to attend the Conference.

  "Work Incentives: New Evidence for Ireland" By Tim Callan, Claire Keane, Michael Savage, John R. Walsh, Kevin Timoney (ESRI). Better off in work – not on the dole New research from the ESRI finds that 94 per cent of Irish people are better off in employment than out of work – even after taking account of childcare and travel to work costs. Of the remaining 6 per cent, even though they would be “better off on the dole”, most are actually in work. Over 86 per cent of those with young children, who face the highest childcare costs, are better off in work. These findings come from a major new study on work incentives in Ireland, undertaken using SWITCH, the ESRI tax benefit model, and launched at the ESRI’s Budget Perspectives Conference. The study analyses recent data on incomes, travel to work patterns and childcare costs, using internationally established and accepted methods. Comparison with similar studies in the UK shows that replacement rates – the ratio of out-of-work income to in-work income – are broadly similar in Ireland and the UK. Although headline unemployment benefit rates are higher in Ireland, half of the UK unemployed also receive Housing Benefit, which brings overall payments much closer. Ireland does have a higher proportion facing the very highest disincentives to work. This is mainly due to the Rent and Mortgage Supplement scheme, which provides support for housing costs to those out of work, but little or no support to those in work. Previous ESRI research also found that work incentives were undermined by this scheme, which covers 1 in 8 unemployed people, and the Troika has highlighted the need for action in this area. However, the study rejects the claim by the Troika that Ireland’s unemployed generally face high replacement rates by international standards. Careful analysis of the OECD database shows that Irish replacement rates are in the middle of the range for EU-15 countries. Previous analyses do not accurately represent Ireland’s position, largely because the examples chosen included Rent and Mortgage Supplement, which is given to only a small proportion of unemployed people. Excluding this supplement gives a more accurate picture and shows that Ireland is similar to many EU countries. Speaking at the conference, Professor Tim Callan said “Comparisons based on nationally representative samples give a more accurate picture than selected examples. Overall, we find that the unemployed face similar work incentives here to elsewhere in the EU. The very large majority are better off in work not out of work.”

Notes (1) SWITCH, the ESRI tax-benefit model, has been developed and used for analysis of tax and welfare policy issues over the past 25 years. The SWITCH team are members of the EUROMOD group, providing the Irish element of an EU-wide tax benefit model. (2) The main data sources used in the paper are the CSO’s Survey on Income and Living Conditions, 2010, the National Travel Survey, 2009, and the Household Budget Survey 2009-2010. (3) Details of the travel to work and childcare costs used in the analysis are contained in the paper. For example, the average childcare costs associated with taking up a job are estimated as between €94 and €135 per week for a family with a child aged under 5, using the Survey of Income and Living Conditions 2010. Average travel to work costs are estimate at between €15 and €25 per week, using the National Travel Survey 2009 and the Household Budget Survey 2009-2010. (4) Less than 14 per cent of people with young children are found to be worse off in work, when childcare and travel to work costs are taken into account. In more than 3 out of 4 cases, the individuals concerned are actually in employment.

  "Fiscal Policy for 2013 and Beyond" By John FitzGerald (ESRI) The fiscal adjustment, agreed by the Government in November 2010, plotted a gradual correction in the Irish public finances over the period to 2015. While probably not ambitious enough, the Plan was realistic and it has been delivered on by both the outgoing government and the current government. Our fiscal targets have been more than achieved, even though the external environment proved worse than expected. This contrasts with the Spanish experience, where greater ambition was shown in their initial Plan but it was not delivered on. One lesson from the financial markets is that it is best to under-promise and over-deliver. The relatively gradual adjustment to date means that there is a lot more to do: the planned cuts and tax increases for 2013 of €3.5 billion must be implemented, to be followed by further substantial adjustments in the 2014 and 2015 budgets. It is too early to know whether these adjustments will be sufficient to restore the public finances to order by the end of 2015. However, as suggested by the IMF, should the unfavourable external climate see future targets being missed purely because of cyclical factors, the Plan should not be altered. It is only if it becomes clear that the structural deficit is significantly higher than had been anticipated, that tougher measures should be considered. International experience with fiscal adjustments in the 1980s/1990s shows that progress is generally slow as tough fiscal measures affect growth. The signs of progress are initially more apparent in the current account of the balance of payments than in the government deficit. It is only towards the end of a period of fiscal adjustment, as the negative growth effects ease off, that there is generally rapid progress on reducing the deficit. A key task for fiscal policy is the reduction in Ireland’s indebtedness. To this end, an important objective should be to get back from the banks a significant portion of the public funds that they have received to date. To do this the banking system needs to be restored to profitability in the context of a growing economy. Realising the benefits of this policy can be done in two ways: towards the end of the decade, individual banks could be sold for a good price, once growth and bank profitability are restored; or, alternatively, we could sell the banks today to the EU ESM for a price that reflects their long-term value. The paper concludes that the Budget for 2013 should implement in full measures designed to reduce the deficit by €3.5 billion.

  "Simplifying Benefits: Learning from UK Experience" By Mike Brewer (Institute of Social and Economic Research), James Browne and Wenchao Jin (Institute of Fiscal Studies) Evidence on the likely impact of the UK’s new “Universal Credit” system was presented to the ESRI Budget Perspectives conference by Professor Mike Brewer (University of Essex) today (27/09/2012). His analysis shows that, if successful, the Universal Credit – a single welfare payment for working-age adults – would make the welfare system more effective and coherent. But it will create winners and losers in the process: couples with children will gain from it and, when transitional protection expires, lone parents will lose. The Universal Credit will have mixed impacts on work incentives. On average, incentives to work will be stronger for single adults and main earners in couples, but weaker for both adults in a couple to work, rather than just one. It will also lead, on average, to stronger incentives for low earners to earn more, but slightly weaker incentives for middle earners to earn more. Speaking at the conference, Professor Brewer said: “The Universal Credit has the potential to simplify the current complicated overlap between benefits and tax credits in the UK, making life easier for claimants and reducing administrative costs. But it is hard to see why the UK Government has decided not only to leave Council Tax Benefit out of the Universal Credit system, but also to give local government control over its design. There is a real risk the UK will go from a system of six means-tested benefits to one with dozens, or even hundreds, of different means-tested systems. ”

Note to Editors: "Budget Perspectives 2013", edited by Tim Callan (ESRI), will be published online on the ESRI website at 00:01 am Thursday 27 September 2012. The book includes one paper from the first session, i.e. “Fiscal Policy for 2013 and Beyond” and the two papers from the second session. Presentation slides will be available to download from our website on the day of the Conference.