Government must use the Budget process to tackle inequality

Structural inequality is a root cause of poverty, and all Government decisions play a role in determining how equal or unequal our society is. This is particularly evident when it comes to the decisions it makes in the annual Budget.

The National Economic and Social Council’s recent report, Inequality and Wellbeing Frameworks, outlines the impact of inequality in society and presents recommendations to address it. The report refers to the book The Spirit Level: Why More Equal Societies Almost Always Do Better, by Kate Pickett and Richard Wilkinson. When it was published in 2009, this book stirred international discussion and debate on the damaging effects of inequality on societies. Unfortunately, its insights have not influenced Government policy in the ways we might have hoped. However, in the face of rising poverty and inequality, its lessons remain as relevant today.

The Spirit Level drew on extensive research to show that, once countries achieve a certain level of wealth, their level of equality is a greater indicator of progress than any further increase in wealth. It showed that more unequal societies have worse physical and mental health, lower levels of trust, increased violence, drug abuse and imprisonment, reduced quality of early childhood and reduced social mobility. While these negative impacts disproportionately affect those who are poorest and people on lower incomes, they also have consequences for all of society. This is because inequality affects the social fabric, damaging social cohesion and social relations. Pickett and Wilkenson showed that the material differences in society create a type of social distance, resulting in some people feeling superior and others inferior. This leads to a greater tendency to judge people from different social backgrounds, including greater prejudice against people experiencing poverty, as well as other vulnerable social groups. It also results in those in poverty and from vulnerable groups experiencing higher levels of stigma.

Unfortunately, as the impact of inequality becomes more obvious in society, Governments all too often respond by addressing the symptoms and not the causes. The tendency is to protect the better off and to blame the poorest and most vulnerable.

INEQUALITY IN IRELAND

Most analysis of income inequality looks at the share of incomes in a particular year. One of the approaches that is simplest to understand is called the quintile share ratio. This measure compares the annual incomes of the top 20% of earners to the bottom 20%. In 2022, the top 20% of earners in Ireland had an income four times that of the bottom 20%. This is slightly better than the EU average and is down to the role our tax and welfare systems play in redistributing market incomes, such as wages, investments, rental income and pensions. Before redistribution, Ireland has one of the highest levels of income inequality in the OECD.

However, if we are to truly understand the role income inequality plays in our society, it is crucial we look at the cumulative impact of income inequality over time, and how this leads to people and families being able to accumulate vastly different levels of wealth and resources. This cumulative impact gives them very different possibilities for the expectations, opportunities and experiences they have in life.

Having an adequate income enables people to afford the goods and services they need and – at a very basic level – to afford a decent life and avoid poverty. However, as people’s income increases above this basic level of adequacy, they are more likely to be able to accumulate wealth over time. This enables them to avail of greater choices when it comes to things like educational and work opportunities, where they can live, the health and care services they can access, their ability to decarbonise their lifestyle, and the leisure activities they can enjoy. As wealth is accumulated over time, these opportunities, and the better outcomes that flow from them, are passed on to the next generation, and so the advantages gained by those with the greatest wealth are sustained, as are the disadvantages of those with the least wealth.

This wealth inequality has created and maintains divisions in society across social classes. Its impacts are not just experienced at an individual or family level, but also at a community level. Where people live, and the creation of more and less advantaged communities, further reinforces the differences in available opportunities. It impacts on who people interact with, their outlook on life, the quality of their environment, life expectancy, their capacity to participate and influence the decisions that impact on their lives, and their perceptions and value judgements about themselves and others in society.

In 2020, the poorest 10% of households in Ireland had an accumulated net wealth of €600, while the wealthiest 10% had one thousand three hundred times that, or a net wealth of €788,400. The net wealth of households in the middle (the median) was €193,100.

In Ireland, as in other countries, income and wealth inequality intersects with other forms of inequality, reinforcing the exclusion, disadvantage and risk of poverty experienced by groups in society on the basis of gender, marital status, family status, sexual orientation, religion, age, disability, race, membership of the Traveller community and a person’s wider socio-economic status.

IMPLICATIONS FOR GOVERNMENT

The corrosive impact of inequality in Ireland and elsewhere backs up the findings of Pickett and Wilkinson. This overwhelming evidence should result in strong measures by Government to reduce all forms of inequality, including income and wealth inequality. All Government policy – economic, social and environmental – should be consistent with achieving this. The consistency of this policy will determine whether or not our economy and society are structured in a way that facilitates poverty to thrive, or in a way which prevents it.

While all Government policy can play a role in the creation of a more equal society, the Budget is a particularly important opportunity to focus the state’s resources on this goal. Budgetary decisions must be seen as investments in the creation of the type of society we want.

Ensuring everyone has an adequate income

The first line of defence against income and wealth inequality is to push up the incomes of those on the lowest incomes and ensure everyone has an adequate income to live with dignity and participate fully in the society. For those in work this involves decent, liveable wages. For those partially or fully dependent on social welfare it involves welfare supports set at a level that is adequate to meet the cost of living.

Research on the Minimum Essential Standard of Living (MESL) demonstrates the work needed to achieve an adequate income for everyone.

MESL research helps inform the setting of the Living Wage by the Living Wage Technical Group. For 2022/2023 the Living Wage is €13.85 for a single adult working full-time. So, while increasing the Minimum Wage by 12% to €12.70 in 2024, as recommended by the Low Pay Commission, would be a welcome step, it is still some way off what is needed for a full-time worker to meet the cost of living. Steady progress is needed within the next few years towards achieving a benchmark based on the cost of living.

In relation to social welfare, the MESL research in 2023 showed that 187 of the 214 household types it assessed that were dependent on social welfare did not have an adequate income. A single adult on social welfare has a weekly income that is €66.70 below what is needed to achieve a Minimum Essential Standard of Living.

An essential Government measure in addressing inequality must be the benchmarking of welfare rates at a level necessary to meet a Minimum Essential Standard of Living, while also working to address the factors driving up the cost goods and services.

Investing in public services

Ensuring everyone, irrespective of their level of income, impairment, background or location, has access to the essential, quality public services they need, when they need it, is a central plank of an equal society.

However, in Ireland, due to historic under investment and a heavy dependence on the private market, we have a very mixed picture of service delivery. The Irish model facilitates inequality in access and outcomes based on someone’s income and wealth and other factors that impact on different groups in society. This is visible in different ways in our housing, care, health, education and transport systems.

We need to move towards a model of public delivery of public services in Ireland where everyone is guaranteed timely access to high quality services which not only meet their human rights, but support their positive well-being and full participation in society.

Ensuring access to a decent job

Many groups and communities in society have unequal access to decent work. The employment levels of people with disabilities, Travellers and Roma, lone parents and others are much lower than for the general society, with Ireland among the worst performers in the European Union for some of these groups. Employment opportunities and levels are also lower in less well-off areas. Tackling access to work in a meaningful way means addressing the structural barriers to employment for these groups and communities, issues related to adequate income and access to services, as well as the prejudice and discrimination many experience.

Leaving no-one behind

We can see that progress for the majority does not mean equality for all. A more equal society cannot be achieved unless it is achieved for everyone in society. This means systematically ensuring no group or community is left behind and proactively promoting equality and tackling discrimination. Significant proactive measures and direct additional investment in these communities is also necessary to address the existing inequality and disadvantage they experience.

This also includes resourcing and enabling the participation of marginalised groups and communities in the development and implementation of policy. Rapidly increasing the funding of autonomous community development organisations to levels similar to what was in place before the economic crash is the most effective way to facilitate this participation.

Redistributive taxation

Taxation plays a central role in redistributing incomes and generating resources for investment in the creation of a more equal society. Despite what many think, Ireland is a low tax economy. We have by far the lowest levels of tax to GDP in the EU, with taxation levels of 22% of GDP in 2021, only half the EU average, and well behind the levels of similarly wealthy countries. So, there is room for tax increases and widening the tax base, particularly taxes that are progressive, tax wealth and disincentivise negative behaviour, including behaviour that damages the environment.

Given the need for investment in many of the challenges outlined above there is no room for tax cuts in the Budget. It is therefore critical that any tax changes, including proposals that reduce tax revenue, are poverty and equality proofed, particularly considering that tax changes in Budget 2023 were regressive and benefitted higher income households most.

CONCLUSION

Addressing structural inequality requires a long-term vision for the type of society we want to see, backed up by a sustained policy approach across all of Government. The central warning from The Spirit Level should provide us with motivation: that failure to effectively address inequality has ongoing and dire human, societal and economic costs. Decisive action at Budget time is an important opportunity to move our society in the right direction.

By Paul Ginnell, Director EAPN Ireland

Read our full Pre-Budget 2024 submission here.