The impact of the tax and welfare system on market income inequality was discussed. Ireland’s welfare system has been quite effective in reducing inequality as measured by the GINI coefficient. The transfer system was highlighted as particularly effective in that it is responsible for three quarters of the reduction in the GINI coefficient post taxes and welfare.
Other main points included:
- Given Ireland’s favourable dependency ratio, the largest impact of the transfer system can be seen in transfers to the working age population.
- The maintenance of core social welfare rates throughout the fiscal consolidation offer a strong minimum income floor in Ireland, redistributing income and reducing inequality.
The accuracy of, and the methodology associated with, the data provided by the SILC was examined. The SILC provides performance indicators on income, poverty, inequality, and social exclusion in Ireland along with additional information collected in modules which are included every three or six years. The importance of acknowledging the strength and limitations of the data was highlighted.
The SWITCH model is a tax-benefit micro-simulation model developed by the ERSI which can be used to estimate the economic impacts of changes in economic policies such as a change in the rate of USC or social welfare payments. The importance of using micro simulation models was emphasised stating that such models provide a nationally representative picture of the impact of policy changes, based on data from real people. A number of examples were provided and the future potential applications of the model were discussed.
An overview of the earnings distribution in Ireland was provided and a particular emphasis was placed upon understanding the characteristics of those who are considered “low-paid”.
Pilot studies are important, both in reviewing the impact of future policies as well as the efficiency of the intended process. Pilots are required under the Public Spending Code for current expenditure which fall within the code’s guidelines and draft guidance will be issued for consultation shortly.