Beyond Austerity: Building a Strong Economy and a Fair Society from the Middle Out

Address by the Minister for Social Protection, Joan Burton T.D., at the Humbert Summer School

 

31 August, 2013

In 2010, Ireland was forced into an EU-IMF bailout, thanks in no short part to the previous administration’s carelessness and ineptitude.

Three years on, under this Government, I think it can fairly be said that our country’s prospects have improved greatly.

The CSO confirmation this week that the numbers at work have increased year-on-year by 33,000 is an indication of that progress.

That is another welcome indicator that Ireland can confidently soon say farewell to the troika.

There won’t be any dramatic moment when the troika flag is hauled down to be replaced by the Tricolour, but there will be a significant restoration of economic sovereignty.

Now, that will not be a licence to return to the bad old days of reckless overspending.

Money markets will still dictate very definite limits to our capacity to borrow at manageable interest rates, while the new so-called two-pack and six-pack rules within the EU as approved by the people in last year’s referendum will impose quite strict limits on future budgets, not least the one to be announced on October 15.

In no way do I want to underplay the request we will be making of the public in October to bear with us as we continue to reduce the deficit.

But we are getting closer to the end goal.

Economic growth has returned, and over time, will pick up pace.

Unemployment is falling, and a range of measures have been introduced to address the very challenging mortgage and debt problems.

So this is a good time to look forward, to consider the type of country we want post-recovery.

To me, there is one straightforward policy objective from which a better economy – and society – will emerge.

That is full employment, which I believe must be the overarching goal of economic policy.

Full employment is how we leave austerity in the distant past.

It’s how we increase tax revenue, build a viable social insurance system, reduce welfare expenditure and create room for new investment in services.

It’s how we create a more productive economy and a more caring society.

Tonight, I want to talk about the importance of that target, and how my own Department is doing everything it can to bring it about.

 

Social welfare expenditure – the context:

Over recent years, cost-saving measures have cumulatively reduced welfare expenditure by more than €3 billion.

The Department has played a huge part in the deficit reduction effort – and will continue to do so.

But as I’ve said before, we must ensure that we do not cut too far and too deeply.

This is because of the crucial importance of welfare expenditure, both in terms of preventing poverty and acting as an economic stabiliser.

Research shows that social transfers reduce the at-risk-of-poverty level in Ireland by more 60% – the most effective performance in the EU.

That is a key reason why this Government has protected core weekly welfare rates in successive Budgets, and will do so again in this Budget.

The second impact of welfare expenditure is the contribution that €20.3 billion makes to stabilising demand.

The spend of the Department puts money in the tills of almost every business and shop in the State, as our customers spend their benefits and pensions each week, thereby maintaining domestic employment and economic activity.

The importance of welfare as a key tool for stabilising demand is recognised here and abroad.

The Secretary General of the Department of Finance, John Moran, made the point in a speech earlier this year that “supporting incomes of the most vulnerable and those who suddenly found themselves out of work” acted as one of the automatic stabilisers that helped to “support economic activity during the downturn”.

Internationally, the US Congressional Budget Office’s evaluation of the 2009 Obama stimulus package found that the extension of emergency unemployment benefits was the most effective form of any stimulus, with each additional dollar spent on unemployment insurance producing $1.52 in additional economic activity.

So protecting core weekly rates makes absolute sense both for the individual families who receive welfare payments and for the economy generally.

The benefits of full employment:

Getting people back to work is the most effective way of reducing the social welfare bill while actually improving the economy.

For every 10,000 people who leave the Live Register, the social welfare bill falls by approximately €95 million.

At the same time, tax revenues increase, and room is created for extra investment in essential services.

So as well as being a safety net when people lose their jobs, social protection must also be a springboard back to work.

We must have a welfare state for the 21st century, not the 20th.

Which is why, since coming to office, my focus has been on transforming the Department from the passive benefits provider of old to one that is actively assisting people back to work, training or education.

The single biggest reform has been Intreo, the Department’s new employment service.

Some of you here will have a vision in your heads of the old-style labour exchange office, where you turned up and got a payment, and little else.

Those days are gone.

Now, through our Intreo services, which we are rolling out to offices nationwide, Department staff actively engage with jobseekers to help them find work or training or return to education.

This is also why we are spending more than €1 billion this year on work, training and education places that will benefit about 85,000 people.

And by the way, we don’t just provide supports for jobseekers.

We give crucial supports to employers too.

Take JobsPlus, our new employer incentive scheme.

Employers get cash grants of between €7,500 and €10,000 to hire people who are long-term unemployed.

All these measures are geared towards the target of full employment.

And these efforts are already paying off.

The CSO data this week shows unemployment has reduced by 22,200, the fourth quarter in succession where unemployment has declined on an annual basis.

So progress is being made.

Of course, the bailout programme, and the need to reduce the deficit so that we can exit the programme, places constraints on what we can do as a country.

But just as full employment is the right target for Ireland, it must also be the target for the EU.

And a fundamental shift in thinking on the wider EU level would help enormously in that respect.

In recent months, I and others have been arguing that the limits of austerity have been reached at European level.

The EU needs a new approach, based on investment, growth and job creation – with full employment the overarching goal.

And I take great heart at the very basic rethink of economic philosophy that President Obama is leading in the US.

This back-to-basics re-evaluation recognises the failure of the trickle-down approach that has been dominant since the 1970s.

This was the notion promoted by the super-rich that if we protected them, their wealth would trickle down, and that would help everyone else prosper.

The entire western world bought that line.

For three decades, governments of the right and centre, including those of Clinton and Blair, yielded to it.

The results were great for the super-rich – and disastrous for everyone else.

Inequality thrived.

In 2008, the economy collapsed largely from the reckless activities that stemmed from that philosophy. 

Now out of that ruin, Obama is forcibly reminding the world of an older truth: that lasting growth and shared prosperity come from the middle out and not the top down.

Now that this battle of ideas has started, it will undoubtedly drift across the Atlantic and, as far as I am concerned, it cannot happen a moment too soon.

It boils down to one single question: which is the best strategy for long-term prosperity for the majority – an ever-increasing concentration of wealth at the top or a thriving middle class?

Future challenges:

The US debate ties into the modern reality, of course: the world of work is much changed from the era when a job was for life and a single wage was usually enough to provide for a household.

Low wages and zero-hour contracts are now features of the modern work environment.

Combined with the lack of private pension provision, such trends raise worrying issues about the security of income both in work and in retirement.

They demonstrate why a strong, supportive and responsive welfare state will continue to be of such importance even if and when full employment returns to Ireland.

Already, my Department spends hundreds of millions a year supporting people who are in work.

The Family Income Supplement – a weekly tax-free payment offering extra financial support to employees on low pay with children – is the most common example.

At present there are more than 40,000 families benefiting from the scheme.

My Department spent €224 million on FIS last year and this is expected to increase to €260 million this year.

In effect, social welfare is topping up the wages of families whose work income is not sufficient to enable them to make ends meet.

In the process we are subsidising employers – which are often very large and profitable organisations – and this represents a profound challenge to both the welfare system and to the wider economy.

That is why I was delighted to restore the minimum wage when I first entered government, after it was cut by the previous administration.

It is also why I’ve suggested the possibility of introducing a Living Wage in the future.

A Living Wage would be higher than the Minimum Wage, and would provide the income necessary to meet basic needs, including housing and healthcare, on top of items such as food and heating.

The idea is that an employee earning this amount will not need significant welfare assistance, in stark contrast to many on the Minimum Wage.

Research in London, which has a voluntary Living Wage, has shown that it works for employers, employees and the Exchequer.

In my view, we should consider a gradual phasing-in of a Living Wage.

Like London, it could begin on a voluntary basis – with buy-in from employers.

I have little doubt it would quickly find broad social agreement.

A proper contributory system:

People need a sufficient wage while working.

They also need to be sufficiently cushioned when they lose their job – as well as helped back to work.

We have a system that is in part contributory – workers pay social insurance and are entitled to benefits based on those contributions in return.

But I think it’s fair to say that, at the moment, those benefits are insufficient when they lose their job, become sick or have a child.

That is why I believe that we need to move decisively over the next decade to a wider, more enhanced contributory system for social protection.

When the economy recovers, the most pressing change would be to progressively replace Jobseeker’s Benefit with a new system of Income Protection.

This would offer anyone who had made sufficient contributions but became unemployed or lost their business an income proportionate to their previous earnings.

It would protect contributors from the dramatic drop in income they face on losing their job, which can often trigger a spiral of further problems, like losing their home, relationship breakdown or falling deeper into personal debt.

It would also give people the safety net and springboard to find a new job.

This would ultimately be self-financing, as it would encourage much higher participation in the labour market.

 

Universal pensions:

So we must strive for full employment, a fair wage in work and a fair level of protection based on contributions when not in work.

The fourth leg of the chair would, of course, be to ensure that people have sufficient income in retirement.

The Irish pensions system is creaking, and too many workers – understandably in the current climate – have not invested in a private pension.

I intend to change this.

I will soon bring to Cabinet a roadmap for implementation of a new universal occupational pension scheme.

Workers would be auto-enrolled, meaning from the moment they start a job, they would be investing in a pension.

And when they switch job, that pension would move with them.

This private pension would complement the State pension upon retirement.

Of course, auto-enrollment cannot be introduced immediately – the economic circumstances simply don’t allow it right now.

But this is the time to be shaping the reforms so that, when the economic circumstances do allow it, the system will be ready to kick in immediately.

Conclusion:

In conclusion, then, I think full employment is the number one objective in building a better Ireland beyond austerity.

And while I share people’s frustration at the pace of progress, I firmly believe we are on the road to achieving that.

But even with full employment, we will need a strong welfare state to protect people at vulnerable times in their lives.

And I’ve tried to give a flavour of the kind of welfare system I believe we need to build – and the steps that are already in train to build it.

The provision of such a system will ensure that the recovered Ireland will not just be economically sound, but socially just.

An Ireland where full employment is once again with reach, where workers earn a fair and equitable wage, where people feel secure in retirement, and where a basic fabric of decency runs through society.

It has been a long and painful road – and there are further tough steps yet to take – but I firmly believe we are heading in the right direction.

It would be remiss of me here tonight if I didn’t mention the late Seamus Heaney.

His most famous line – the line which resonated so profoundly with people across the world – was, of course, about hope and history rhyming.

It is my firm conviction that we can make a strong economy and a fair society rhyme too.

Thank you.