| 17.4°C Dublin

Welfare is just not working - we need new solutions

Close

Welfare reform is a risky pursuit for politicians

Welfare reform is a risky pursuit for politicians

Welfare reform is a risky pursuit for politicians

Tanaiste Joan Burton wants to get people off the dole and back working. In order for this to happen, a few things need to be in place.

There have to be jobs. The unemployed have to have the appropriate skills or qualifications to take up the jobs available. And the mix of social welfare, taxation and wages has to be right to make it financially worth their while to work.

Burton appears to have Cabinet backing for a scheme that would attempt to go some way towards making it worth their while. It is extraordinary to think that after everything people have been through, from the boom to bust, that the decades-old problem of making work pay still exists.

The Tanaiste's plan is aimed specifically at those who are parents and would allow them to receive social welfare benefits equal to €30 per child per week, while working full time.

The estimated cost to the Exchequer is around €20m. This suggests that it is a relatively small and targeted initiative. It may encourage some families, but the intersection between work, welfare and wages still looks like a spaghetti junction.

Back in 1997, an accountant was asked by the then opposition Fianna Fáil party to devise a set of taxation and employment policies for the party for the upcoming June election.

Michael Flynn, now of MJ Flynn Consultants.ie, presented the Fianna Fáil frontbench with a taxation strategy that became the backbone of the McCreevy-era tax reform package. It advocated a restructuring of tax and welfare models to ensure that people were always at least 20pc better off working than on the dole.

On foot of studies into the welfare trap by bodies like Teagasc at the time, Flynn wanted to tackle this structural fault line in the system that we are still talking about today.

At the time, unemployment in Ireland was 10.4pc but was falling rapidly. Ireland needed incentives to encourage people to take up the flood of new jobs being created. Flynn's analysis at the time suggested that a working person's disposable income barely rose when they increased their pay from £5,000 per year to £18,000 per year.

Once in power, Fianna Fail fixed the problem with taxation reform but not social welfare changes.

Fast forward to 2012 and former ESRI economist Richard Tol estimates that 19pc of working parents would be better off on the dole. He had lobbed a massive grenade into the welfare/work debate.

Social welfare figures show that the vast majority of people on the dole claim only for themselves. Only around 9pc of those on the register are couples with two or more children.

This is the group that Burton believes can be helped with this measure. And she may be right, but it hardly constitutes a radical change.

The OECD has been saying for years that significant disincentives to work exist in the system. For example, many people work as part-time or casual workers. They are entitled to various benefits and the numbers availing of them in Ireland are much higher than in other countries.

For those workers, there are what are known as "disregards". This is the part of an income that is not counted when benefit entitlements are calculated. The OECD says they are too high and act as a disincentive for people to shift from part-time to full-time work, because they get hit with higher taxes combined with the loss of these benefits.

It is deeply ironic that as Burton is talking about using state funds to subsidise parents' return to the workforce, on the same day, her own Business and Employment, Minister Ged Nash, is calling on companies to pay higher wages. Nash says the state is paying out €500m in "corporate welfare", through family income support.

He thinks employers, particularly large companies, should contribute more by paying higher wages. This appears a little at odds with the new incentive which would see increased state subsidies to encourage people to take up jobs.

One other real problem with the Burton initiative is ensuring employers don't just use the welfare benefit as an opportunity to pay less.

Burton is definitely pushing for a different approach in social welfare. A raft of new initiatives from Skillnets, Momentum, Job Bridge and Springboard are aimed at improving training and opportunities.

Fas has been replaced as the main state training body by Solas. It has a big part to play in ensuring people are trained up for things that employers actually want. Burton also looks set to privatise a large part of the job placement area to private operators who will be paid to find jobs for those on the dole.

This could be very risky.

Yet despite all of these initiatives, there simply has not been a complete overhaul of the relationship between work and welfare, and how both are structured. Rewarding work, while retaining the social compassion that is necessary in any welfare system, should be a priority.

The National Competitiveness Council submission on the jobs action plan fudged this issue by calling for a review rather than listing a specific set of measures that should be implemented.

Jobs are being created in this economy now. Live register numbers have come down quite rapidly. In the two years to June 2014 around 64,000 new jobs were created. Nearly half of those were in the skilled trades categories.

Interestingly, jobs in industry are down. Public service job numbers fell 3,900 in the year to June and have fallen by 33,000 in the last three years.

Employment numbers in lower-paid jobs like retailing or customer service are not yet showing real rises. Professional job numbers have risen little.

Different companies have different needs. Let's say you are a mechanic and you are taking on more business. You need to hire one additional person and you don't have the time to take on some junior apprentice type. You want an experienced person who is a bit older. If he is on the dole and has children, it would be very hard for a small business like that to offer the kind of wages to make it attractive.

The black economy is another big factor when it comes to welfare and work depending on what skills you have. Talk to anybody in hairdressing about how many at-home services are cropping up in small towns all over the country.

It is estimated that at least 80,000 former construction-related workers are still on the dole. Any of those with children will find it particularly difficult to land work that makes financial sense.

There was little point cutting welfare to force people out to work when very few jobs were being created. This would have been a form of torture as people already struggled massively to grapple with the shock of the crash.

But the last few years should have been an ideal time to rethink the work/welfare balance in relation to tax on one one side and benefits on the other.

The jobs situation is improving. The vast majority of people in society want to work and know they and their families will benefit in lots of different ways from that. So, disincentives to achieving it should be dismantled.

Some things are moving in the right direction. We are seeing greater numbers of new full-time jobs being created as opposed to part-time work. The numbers of long-term unemployed (the real danger group) have reduced by 28,500 in the last year. This is a good result.

A level of imagination has entered the job creation area. Burton's back-to -work scheme is a help, but it will not be a game changer when it comes to genuinely rewarding work through extensive social welfare reform.

Asking the big questions about work and welfare is a political minefield. It could end up as a political graveyard for any party willing to take it on.

Scandinavian countries, often seen as having generous welfare systems, taper off benefits after a certain number of years. This acts as a tough incentive for people to work. But such an approach can only work where there are jobs, where there is a proper employment-driven welfare infrastructure to help them and a tax system to match.

That is a burning political issue that is just too hot for anyone to handle.

Indo Business