Why is Relative Income Poverty so High in Ireland?
16/09/2004
Why is Relative Income Poverty so High in Ireland?
By Tim Callan, Mary Keeney, Brian Nolan and Bertrand Maitre
While average income per head has risen dramatically in the last 10 years, the number falling below 50% of average income is well above the EU average. What can Ireland learn from countries that have done better at achieving social inclusion, notably Denmark and the Netherlands?
- Not all those falling below such relative income thresholds are poor: the EU defines them as ”at risk of poverty”.
- Differences in age and employment profiles, household composition and single parenthood do not explain much of the variation between countries.
- Differences in tax and welfare rates and structures are more important. Simulation with a tax-benefit model shows that raising Irish welfare coverage and support rates to Danish levels would substantially reduce the numbers “at risk” of poverty.
- However funding Danish-style payment rates and coverage would mean substantial extra taxation, for example raising the standard and top rates of income tax by 11 percentage points.
- Successful anti-poverty policy requires both improved education and employment opportunities AND better income support – neither is sufficient on its own. Denmark and the Netherlands have both high employment and a comprehensive welfare system.
- Ireland has achieved high employment and low unemployment rates. The experience of other EU countries suggests a more comprehensive safety net and higher rates of welfare payment are also needed if this indicator of poverty risk is to be brought down substantially.
- This higher spending would have to be financed via higher taxation, and the implications for economic incentives, behaviour and economic growth would have to be taken into account.
WHY IS RELATIVE INCOME POVERTY SO HIGH IN IRELAND? By Tim Callan, Mary Keeney, Brian Nolan and Bertrand Maitre will be published by the ESRI on 16th September as Policy Research Series Number 53