It’s time to talk about a new post-Covid social welfare contract

Nov 29, 2020


Originally posted on Business Post 29 November 2020.

Last week, Tánaiste Leo Varadkar called for what he termed a “grown-up conversation” on increasing employers’ and employees’ PRSI to fund a reformed social insurance system.

Varadkar, who is also Minister for Enterprise, Trade and Employment, may be overly optimistic. It is unusual to hear anyone who has been in government for the last ten years call for a grown-up conversation when it comes to increasing taxes. It's not something we are good at in this country.

Nevertheless, one of the lessons from the pandemic is that its impact has been vastly different on various cohorts of our society, whether it’s young people, pensioners or workers in different sectors. These lessons must inform how we manage our social welfare system in the future.

One of the most striking aspects of Ireland’s economic fortunes over the past nine months is how robust tax receipts have been. At the end of last month, there was an exchequer deficit of €11.6 billion. This deficit was created primarily by increases in health and social welfare spending, not by a fall off in tax revenues. This is both a cause for optimism and a cause for worry.

It is a cause for optimism that we have a robust private sector that can continue to trade profitably in goods and services regarded as essential at home and abroad. This was by no means certain back in March, when many Irish businesses completely overestimated the negative impact of the pandemic.

It is, however, of little consolation to the very many businesses, primarily in the hospitality, personal services and travel industries, which have been affected and in some cases, damaged to the point of no return. Nor is it of assistance to the unemployed now relying on the pandemic unemployment payment, or to the underemployed whose jobs require support through the wage subsidy schemes.

Currently, the majority of PUP recipients are workers in the accommodation, food, wholesale and retail sectors. Many of the jobs in these sectors are relatively low paid. What becomes of these workers post pandemic?

Should the self-employed still be able to earn a modest income without jeopardising their PUP entitlements as is currently the case? What happens when it is no longer possible to fund the €100 million per week which the payment costs, yet the jobs that were there before March 2020 have not returned, perhaps gone for good?

One approach to this question is contained in a report of the Arts and Culture Recovery Taskforce which was presented to government last month. The report, called Life Worth Living, recommended, among other supports, a universal basic income.

Artists and other cultural workers could opt into an unconditional state payment at the level of the national minimum wage for three years, and the payments would not be means tested.

Working out at €325 a week for perhaps 7,000 or so individuals, this does not seem like a huge ask on any government, particularly one that uses its arts sector as a cultural beacon to command the attention of the world. The broader question is why a universal basic income should be confined only to arts and culture workers.

The very idea of a universal basic income, also sometimes termed a citizens' income, attracts all kinds of objections. It might direct scarce public money to people who don't need it. It might result in people not looking for paid work. It wouldn't solve all problems such as the housing crisis. All this before even working out how much it could actually cost.

Up to now there has been little evidence to disprove or prove these assertions. Three years ago, the social welfare department of Finland paid 2,000 unemployed persons a basic income for a time regardless of any other income they may have had or whether they were actively looking for work. That study concluded that the scheme made small improvements in people's quality of life while not seeming to deter the recipients from looking for work.

It may be dangerous to infer direct parallels with countries where there are cultural differences, and the Finnish survey sample was small. Yet, this year, we have paid a large cohort of Irish people what in effect was a universal basic income via the PUP. As well as providing much-needed support to individuals, it has surely helped support domestic economic demand.

There are far fewer numbers of those availing of PUP during the second lockdown, which suggests that receiving it was not a major disincentive to seeking or resuming employment. The relatively large PUP payment rates meant that some lower wage sectors found it difficult to engage staff, yet the tapering of PUP rates seems to have, in part, addressed this challenge.

We cannot sustain the levels of borrowing currently required to indefinitely fund what after all was an emergency measure. Yet, thanks to the prospect of effective vaccines, the end of this pandemic is in sight.

There is now some evidence that a more generous or liberal welfare system post pandemic, perhaps involving a universal basic income for some sectors at least, should not be rejected out of hand.

If we are to have a grown-up conversation about a reformed social insurance system as the Tánaiste has suggested, it has to be about how to create a new social welfare contract for a changed world post pandemic, and how to fund it.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland