Why some people will get hit very hard

That the most vulnerable will also get hit merely reinforces the view that whatever the government does, it has little to do with social equity or economic rationality; never mind ‘protecting the vulnerable’. By Michael Taft.

Whatever about the leaks, the underlying thinking in much commentary and policy analysis shows why some people will get hit very hard. Yes, those on social protection should look out – especially around secondary benefits and eligibility. And pensioners – many of their programmes will be sliced if not totally jettisoned. If you’re unemployed, don’t expect much help from the budget (it will end up destroying jobs – especially through investment cuts).

What struck me most is the proposition that Child Benefit should be taxed. This featured on RTÉ’s This Week (the weblink to the programme is unfortunately not available). The Minister for Social Protection claimed her preferred position was to tax Child Benefit since this would protect the most vulnerable. The ESRI’s Professor John Fitzgerald made a similar statement – that those on high incomes would be taxed while the vulnerable would be spared. This view shows a lack of appreciation of what can happen to hundreds of thousands of households struggling on modest incomes.

Of course, Child Benefit will not be taxed in this budget; apparently, the computers in Revenue and the Department of Social Protection still can’t ‘talk’ to each other. And here’s another thing: taxing universal benefits does not undermine the principle of universality. Taxation can introduce a progressive feature in payments that are granted to all, regardless of income or employment.

But the emphasis on ‘protecting the vulnerable’ ignores the fact that people at work are also vulnerable. Yet it is this crucial group that would be hit in the ‘preferred option’. It underlines a view that social protection is for the poor, rather than for protecting the social.

What would happen if Child Benefit were taxed? How would some income groups be hit? Those on social protection would be protected – but the low and average paid should watch out.

child income supportPeople – whether single or couples - on low or modest incomes would be hit significantly if Child Benefit were taxed. The most vulnerable would be protected, yes. But there are two issues here:

These income groups may also be vulnerable – with the cost of raising children, possible childcare costs, mortgages, etc.

Hitting these groups will put pressure on even lower income groups – because the loss of demand will result in more cuts in weekly incomes for those employed in domestic service sectors (e.g. retail, hospitality) while ensuring that next year there will still be pressure on public finances – thus maintaining social protection in the austerity spotlight.

Okay, this is an academic exercise – though the leaks suggest that the households above will suffer cuts of €120 for each child, with additional cuts for three or more children. But what about the property tax? Leave aside the vexed question of whether housing property should be targeted while exempting financial property. Leave aside whether it is economically prudent to impose a tax when domestic demand is still falling. Let’s just look at the ‘protecting the vulnerable’ angle.

Leaks suggest that single people on €25,000 or less will either be exempt or the payments deferred; this rises to €30,000 for couples. So how many average income earners will still be hit by this tax – those on moderate means but above the thresholds? From the Revenue Commissioners’ data for 2010 (the latest year we have data for) we find the following:

no of taxpayers in income groupsThere are 438,000 taxpayers in these very modest income ranges. We don’t know how many are homeowners so we can’t assume all will be levied a property tax. But for those who are homeowners, they are not likely to gain any relief from a property tax.

One could argue that these are not ‘vulnerable’, but these are income groups that have suffered income falls over the last few years – whether through pay/working hour cuts, tax increases, and social protection cuts (e.g. Child Benefit). A property tax will see an additional cut in disposable income – and if they have children, it will be even more.

There is a social equity issue here and there is an economic argument – the impact on domestic demand. However, what I’m suggesting is that the ‘protect the most vulnerable’ position means that many people who are struggling will not get protected because they do not fall into that category. These income groups need social protection, too – in the broadest sense (income support, health services, educational resources, childcare, eldercare, etc.)

That is why some people will get hit very hard - they don't fit in the politically instrumental category of 'the vulnerable'.

That the most vulnerable will also get hit merely reinforces the view that whatever the government does, it has little to do with social equity or economic rationality; never mind ‘protecting the vulnerable’.

Many people will get hurt in this budget.  This should lead us to a broader interpretation of social protection. The former will happen, the latter will not.


Image top: infomatique.