Michael Taft: Give Everyone €75 A Week

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From top; Taoiseach Leo Varadkar and Minister for Social Protection Regina Doherty; Michael Taft

Give everyone €75 a week. All adults regardless of whether they are in employment or not, regardless of their income, irrespective of their household circumstances.

This is the pathway to a more rational and efficient social protection and income tax system, to reducing in-work poverty and precariousness, to boosting living standards and to a more efficient productive economy.

In one respect, there is nothing new in this proposal. We already spend a lot on cash transfers to households: billions through the social protection system, tax expenditures (i.e. tax reliefs, allowances and exemptions) and targeted supports such as education maintenance grants.

The €75-per-week proposal is not in addition to these payments. Rather, it is a reform intended to create a more progressive and efficient transfer system – especially for those in low-paid work.

This is not a Basic Income proposal but it does borrow certain principles; namely, the unconditionallity (everyone gets the €75). However, unlike Basic Income, it does not cover all the basics needed for an adequate income.

For instance, the Vincentians estimate the minimum essential living standard for a single person in urban areas to be €245 per week (higher in rural areas due to the need for a car). €75 is a long way from that.

Most of the benefit of this proposal would go to the low-paid or those below the income tax threshold. For those fully in the income tax net, the state pays a single PAYE employee €3,300 a year in tax credits (€1,650 personal credit, €1,650 PAYE credit). This is a flat-rate payment, regardless of earnings. In that sense it is progressive.

However, there is a flaw in the system.

Below the income tax threshold, the lower your income, the less subsidy you get.

By making the payment directly, all income groups at work would receive the same payment. In that sense, the €75 per week (or €3,900 per year) is merely an extension of the personal tax credits to everyone in the workforce.

The €75 a week would also be paid to those reliant on social protection payments. However, it would be a matter of policy whether this would increase a recipient’s income.

The new universal €75 payment could be offset by a similar reduction in the social protection rate. For instance, a Jobseekers’ Assistance recipient could receive the guaranteed €75, and a social protection rate of €128, leaving them with €203 per week – the same amount they receive today.

However, this provide an opportunity to increase social protection payments towards the Minimum Essential Standard of Living which the Minister for Social Protection recently discussed.

Estimating the cost is difficult as we don’t have an accessible database of earnings for those at work. Revenue Commissioners data includes those on occupational pensions.

Further, there would be complex cost estimates for couples with both earning, couples with one earner, and the interaction between social protection and tax for temporary, casual or part-time workers.

Given that, let’s see if we can come up with a (big) ballpark figure for 2016, the last year we have full data for.

There were 2.1 billion people at work. A payment of €75 per week (€3,900 a year) would cost approximately €8.1 billion.

There were about 450,000 adult dependents (married persons’ or civil partners’ tax credit). Extending the €75 per week to this group would cost €1.8 billion.

The total cost would be €9.9 billion. This would be recouped through the abolition of personal tax credits.

Total savings would be €8 billion. Therefore, the net cost would be €1.9 billion. The Government has already set aside €3 billion over the next five years for tax cuts.

This would be a far more progressive approach – and less expensive.

The abolition of the tax credits would mean that workers would receive €75 per week, but after that all income from work would be taxed. For example, someone earning €10,000 a year pays no tax.

Under this proposal, they would pay €2,000 in tax but would receive €3,900 – leaving a net gain of €1,900 per year, or €36 per week. This would mean a sizeable 19 percent increase in income.

The above does not take into account any net gains for those on social protection payments. However, moving towards the Minimum Essential Standard of Living would still not exceed the costs of the Government’s proposed tax cuts.

What are the advantages to this system?

First, most of the benefits would go to the low-paid, or those below the income tax threshold. Not only would this boost living standards and reduce inequality, it would also help in our Brexit-fevered times. These income groups would be likely to spend almost all the additional income they receive, helping to maintain consumer demand.

Second, it could help reduce some of the complexities that occur when social protection payments meet working income (impacting on the low-paid).

For instance, means-tested unemployment payments can vary depending on how many days work you might get; some of this complexity (and reliance) could be reduced if you receive a weekly guaranteed income.

Third, depending on the impact of such a guaranteed income, it could be expanded into a more full-blown Basic Income. The point is that we would have some evidence on which to base any decision to increase the guaranteed income.

This would not revolutionise the tax/welfare system – but it could make it better. It is only one brick. We need several more. But it’s something we can start in the upcoming budget.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday.

Rollingnews

11 thoughts on “Michael Taft: Give Everyone €75 A Week

    1. Cian

      It should be low, it is kind of smoke and mirrors stuff.
      For the majority of people they will have the same amount of money each week – I’ll get €75 ‘free’ money, but lose €75 from tax credits. My take-home won’t change.

      1. Michael Taft

        Cian – you wouldn’t lose €75 in credits. You’d lose €63. You would gain €12 per week. But the biggest gainers would be those below the income tax threshold because their credit-subsidy is lower than €63 per week.

    2. Michael Taft

      Jonickal – good point. The inflationary impact would largely derive from the extra spending by those below the income tax threshold. Inflation doesn’t seem to be an issue today; indeed, we could probably do with some economy-generated inflation. Given the impact of Brexit, the extra spending could be a wash. As there is always a trade-off in these things, for my own part I would risk whatever inflationary impact this may have to maintain consumer spending (and, so, employment) during a Brexit slowdown.

  1. Cian

    You say this is for *all* adults, but then you calculate 2.1 million (I’m assuming the billion is a typo) + 450,000 adult dependents for a total of 2.5m

    But census says there are 3.4m adults (18…100+ year olds). Who are the 900,000 adults that don’t get the €75?

    1. Michael Taft

      Cian – I specifically stated that doesn’t include any net gains for social protection recipients. That is a matter for policy. The intended main beneficiaries of this proposal would be the low-paid and those below the tax threshold. However, if one were to factor in net gains for social protection recipients per the Minister’s discussion ( I linked to a post discussing this) the cost would probably come out the same at the Government’s estimated tax cuts over the next five years.

      1. Cian

        Thanks for clearing that up.
        Another thought – there would be a cost to processing all of these additional payments – the 2 million (PAYE) employees who are all getting paid by their employers will end up paying an additional €63 in tax (as they lose the tax credit) but will be paid, separately, €75 from the government. That seems to me to be, ah, wasteful? Unless it is done that the employer continues to pay the €75, and claims it from the tax man on the employees behalf…. but it seems like a lot of extra work for little benefit – just increase the tax credit to €75 (for the majority who are getting the full tax credit). and have a different scheme for the very low-paid.

  2. Qwerty123

    “Second, it could help reduce some of the complexities that occur when social protection payments meet working income (impacting on the low-paid).”

    This should never ever happen, but in Ireland it does, quite quickly aswell.

    Look at HAP, that is worth 33,600 to a family in Dublin, renting a 4 bed house at 2,800PM. So they would need to earn approx 44k gross starting off. Then add in all the other benefits, social welfare, back to school, fuel, bins etc etc it pays people here to stay on welfare, which is a trap and needs to be removed by incentivising people to work

    I kind of agree Michael,this would help with that, but it needs to be much higher and only should apply to people who work.

  3. Weekend hermit

    Thanks Michael, an excellent article imo.

    For people on welfare, getting the first €75 guaranteed would be a relief as it would inure them from the prospect of arbitrary sanctions which creates uncertainty and anxiety.

    Brutal welfare regimes drive populism as we see in the UK and USA with Brexit, Trump and now Boris.

    There is a bigger picture – it’s not just about how we help people but also how we manage our societies.

    1. George Boyd

      yes a 75 euro starting income floor is somewhere as a starting point into the next decade and beyond with technological advancement in automation, robotics and a, i, there is a candidate in the u. s proposing giving everone over 18, 1000 dollars a month guarenteed, hopefully this is the beginning of a basic income floor for everone and eradicate poverty and inequality once and for all. andrew yang is will be running for the democrats, be interesting to see how mainstream america reacts to these types of policy’s as an alternative to trumps america.

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