Funding limits will define social welfare goals

THE Irish Government is discovering that social welfare and war have some features in common! It is easy to start a war but very difficult to end one! It is also easy to launch, or expand, welfare programmes but when welfare funding capacity tightens beneficiaries are likely to declare war on government if their entitlements are cut, which was the case in Dublin when pensioners revolted in October 2008.

The 2009 Exchequer Statement for Ireland reveals that the national debt had increased by €25 billion in a year to cover a deficit of €24.64 billion.

Irish social welfare spending in 2009 amounted to €21.26 billion, an increase of €3.5 billion (+19.8%) over 2008 and the 2010 Budget provides for the spending a further €660 million in 2010.  This trend is largely attributable to the number on the Live Register increasing from 227,070 to 413,505 and unemployment exceeding 12.5%. There are now approximately 1.8 million welfare beneficiaries in Ireland.

Some €10.7 billion of the welfare expenditure relates to social insurance which is funded by Pay Related Social Insurance (PRSI). The PRSI fund, which had a balance of €3.2 billion at the beginning of 2009 accumulated over the past decade is likely to be now in overall  deficit because of rising unemployment and increased claims for jobseekers allowance and benefit.  The social insurance fund recorded a deficit of €244,718,000 in 2008.  Any shortfall has to me met by the Exchequer through borrowing.

Irish welfare spending increased exponentially in the decade to 2009. The Irish population increased by 19% to 4.45 million but total social welfare spending increased by 183% compared to a rise in the Consumer Price Index of 42.4%.  Expressed as a percentage of gross current government expenditure, social welfare spending increased from 25.9% to 33.4% in 2008 and from 7.5% to 11.4% of GDP in 2008.

Short-term welfare rates of payment have increased  by between 112% and 122%.  Long-term rates have increased by over 100% in the period between 1999 and 2008 – more than double the Consumer Price Index.

Old Age Pensions

A decade ago 75% of all individuals aged over 65 received an old age pension – either contributory, or non-contributory. By 2009 91% of this age cohort qualified for a pension.  The number receiving the contributory State pension has increased from 76,241 persons  in 1999 to 250,117 person in 2008.

Child Benefit and Maternity Benefits

Child Benefit payments have grown four-fold in a decade and are now paid in respect of 1.14 million children.  Maternity Benefit payments have grown 6-fold.

Carers’ and Disability Sufferers’ 

Much of the additional spending went to carers’ or recipients with disabilities. A total of 11,416 individuals received a Carer’s Allowance in 1998 at a cost of €72.89 million. A Carer’s Benefit was introduced in October 2000 for individuals who gave up work to look after an ailing relative. Some 50 individuals received this in 2000 at a total cost of €36,000 By 2008 some 45,818 qualified for the Carer’s Allowance or Carer’s Benefit at to total cost of €483.97 million – an increase in cost of the two programmes in a decade of 563%.

Another are which experienced huge increases related to disability and invalidity. There were 147,158 qualifying individuals for a range of benefits in 1998 but this number increased to 237,651 individuals in 2008.

There is a medical assessment process in place. 43% of applicants were called for assessment in 1998 but in 2008 only 18% of a larger number of applicants were called. Approximately 53% of those assessed are typically deemed incapable of working while the percentage deemed capable of working was of the order of 16-18%. This would imply that if a larger percentage of applicants were medically assessed fewer might qualify for allowances or benefits.

Impact on the Exchequer

Between 1997 and 2007 the cost of social welfare was the equivalent of 26-31% of government revenue.  But in 2008 social welfare spending increased to 43%  and in 2009 to 63% of government revenue.  How can this be sustainable?  Where are the savings to be achieved?  Will political mayhem ensue?

The Minister for Social and Family Affairs refers to welfare funding as ‘an investment to reflect real social progress’  Current spending is not actually investment; it is simply spending.  Ireland’s wage competitiveness is the second lowest in the EU (ahead of Slovakia), according to data provided by the European Central Bank.  The objectives of ‘real social progress’ and ‘inclusiveness’ can only be sustained if the economy manages to sustain an appropriate level of vitality and the capacity to generate output that has value.  The objectives spoken of are not otherwise really achievable.  Where exactly is the country heading if social welfare spending exceeds the Consumer Price Index by a factor of 4?