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Monday 19 March 2018

State will need €7bn to plug benefit shortfall

Edel Kennedy

THE Government will soon have to borrow €250m a month just to pay social welfare entitlements, the Irish Independent has learned.

New figures reveal the Government will run short of money to pay out welfare benefits in just three months.

The Social Insurance Fund (SIF) -- from which social welfare payments are made -- has been decimated by spiralling unemployment and a dramatic fall-off in PRSI contributions.

It is now heading towards a deficit for the first time since 1997 and is likely to remain in the red until at least 2012.

This means the cash-strapped Exchequer will have to borrow a minimum of €7bn to make up the shortfall between now and the end of 2012 so people can continue to receive benefits.

Unemployment is expected to peak at an average of 13.75pc this year, putting increased strain on state coffers.

Live register figures from the CSO show 436,956 people signed on in February.

New figures for March are expected tomorrow and if unemployment has risen again, it will force the Government to borrow more.

The tax forgone for every 1,000 people losing their job is around €8m annually, according to the Department of Finance. And it costs the Government €11.77m in allowances and benefits for every 1,000 people who lose their jobs.

The SIF shortfall has highlighted the dramatic turnaround in public finances. Just two years ago the fund enjoyed a record surplus of €3.38bn, but now just €934m remains. This is due to run out around June.

As a result, the fund will fall into a deficit estimated at €1.5bn by the end of the year, significantly higher than the €1.17bn December Budget estimate. This is despite desperate attempts by the Government to shore up the fund in last April's emergency Budget by increasing worker PRSI contributions.

Last year, an average of €608m was received each month in PRSI, but €812m was paid out in social-welfare payments.

A spokeswoman for the newly named Department of Social Protection said that any deficit in PRSI contributions is met by the Exchequer, meaning funds will have to be borrowed to plug the hole.

"The operating deficit of the (SIF) fund is expected to be some €1.5bn this year," a government spokeswoman said.

"It is forecast that social insurance fund expenditure will exceed its income in each of the years 2010 to 2012. This will be funded by Exchequer subvention."


Opposition parties last night warned that the national debt will continue to spiral if the Government fails to tackle the unemployment crisis.

Labour finance spokeswoman Joan Burton pointed out there were 166,900 fewer people at work at the end of 2009 compared with December 2008. "The pressure on the fund is enormous," she said.

She pointed out the Exchequer loses out on an average of €10,000 in VAT, PRSI and other taxes when a worker becomes unemployed. They are then given around €10,000 annually in unemployment assistance, resulting in a net loss of €20,000 to the Exchequer.

The fund is further suffering because the number of employers who aren't paying PRSI has more than doubled.

Investigations show more than one in 10 businesses did not pay employer's PRSI last year. In 2008, the figure for non-compliance was 5pc but last year it jumped to 11pc.

Fine Gael social protection spokeswoman Olwyn Enright said it was no surprise the fund had slipped into deficit so quickly. "It all comes back to planning. We had the money and the Government just frittered it away. We're going to be suffering for years thanks to their mismanagement."

Irish Independent

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