Michael Taft: Costing An Income Support Scheme

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From top: Minister for Social Affairs Regina Doherty; Michael Taft

The Tánaiste, Simon Coveney, stated on RTÈ Radio One’s This Week:

“If people have sensible proposals that are costed and thought through, that they believe are necessary and will make a difference, we want to hear about them.”

ICTU and SIPTU have done just that, proposing a wage compensation scheme whereby the Government would take over 75 percent of employee wages in sectors and companies that are facing closure, with the employer providing the remaining 25 percent.

This is based on the Danish initiative and is being rolled out in a number of EU countries. Even the UK is putting together a wage compensation scheme.

SIPTU has also called for those who have been laid off to also receive 75 percent of their wage at the time they lost their job, with employers being allowed to top up.

The Government has stated it is working on such a scheme and the Minister for Employment Affairs and Social Protection Regina Doherty  has promised to unveil their own programme in a matter of days.

Good. A number of commentators have lined up behind such wage compensation proposals. It has within a few days become the common sense of the economic emergency we’re facing.

So what is the cost of the benefit this income support will bring? Because let’s be clear, protecting people’s income is a benefit that will pay democratic dividends when the emergency subsides. It will protect households from falling into deprivation and debt and, so, will hasten the recovery.

Let’s start with a baseline of 100,000 employees. Further, let’s assume the average weekly earnings of €688 in the private sector for 2018 and add another 4.5 percent to bring it up to spring of this year. That comes to €719 weekly.

For every 100,000 unemployed, it will cost the state €59 million. Minister Doherty has acknowledged that as many as 400,000 could lose their jobs as a result of the pandemic.

Let’s assume that 300,000 will remain in their jobs as a result of this scheme. That’s 700,000 – who have lost their job or whose employers are at risk of closure; hopefully, a worst case scenario.

This raises the weekly cost to €377 million per week, or €1.6 billion per month. If this emergency runs four months, this scheme could cost up to €6.5 billion. That would appear to be a significant amount. But it isn’t.

First, the hospitality sector took the initial hit and average weekly earnings are much lower (€347 per week) so the cost of wage compensation would be lower. Many of the high-income sectors are unlikely to be hit as hard – financial sector, ICT and big tech, professional services and modern manufacturing.

Second, under a wage compensation scheme, workers’ income would still be taxed (just as Jobseekers’ and Illness Benefit are). So the net cost would be lower.

Third, we have to estimate the cost of unemployment benefit in the absence of this wage compensation scheme. For the 400,000 that may become unemployed, the state would still have to pay Jobseekers’ Benefit.

If we assume the current full rate of €203 per week (not all would get this after the first six weeks, while others with adult and child dependents would get more), the cost would be €1.4 billion.

Taking all this into account, the total cost could be in the area of €5 billion, and could be less depending on the composition of the unemployed and protected workers under the scheme.

€5 billion – how would we pay for this?

We have cash balances of over €20 billion. We have a rainy day fund of €1.5 billion. We can borrow at nearly 0 percent. €5 billion represents only 2.5 percent of the national income (GNI*) that we generated last year.

National income is likely to fall, but even if it collapsed by 25 percent in nominal terms (the amount it fell during the bank recession), it would still only be a relatively small 3.3 percent. I don’t think I need to compare this cost with that of the bank creditors’ bail out.

Keeping businesses in business, supporting people’s incomes, avoiding debt and deprivation, putting the economy in a position to quickly recover after the pandemic emergency – the cost of a wage compensation scheme shouldn’t be seen as a cost. It is an investment, economically sound and socially equitable.

Let’s go for it. And start the conversation of how we put income protection on a permanent footing when the emergency passes.

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: Costing An Income Support Scheme

  1. class wario

    Have been saying broadly the same thing the past week or so. There is no thrifty way out of this. The ‘real economy’ here is full to the brim with services and goods industries that need people with money in their pocket to prop them up. Trying to ride the wave for 3-6 months without supporting the people out of a job will only slow the attempts at a ‘recovery’ further, when people have no disposable income and less people are employed because of the inability of businesses to survive in an environment sorely lacking in said disposable income.

    In 2008/9, there was a pervasive sense of ‘blame’: that we all overextended ourselves blah blah blah. That isn’t appropriate now (was it ever?) and shouldn’t be accepted. We need a europe if not worldwide approach to pro-actively spending and supporting out of this crisis.

    1. Brother Barnabas

      the EU has been badly exposed here

      passively observed utter mayhem in italy without any real effort to assist

      next thing will be germany tutt-tutting and blocking proposals for a stimulus package

      this might be the event that opens people’s eyes to what the EU really stands for

        1. Brother Barnabas

          what’s needed is free money

          time to print billions of euro and throw it out the window

  2. Daniel

    “If this emergency runs four months, this scheme could cost up to €6.5 billion. That would appear to be a significant amount. But it isn’t”

    There is merit in income support but denying that the sums involved are significant is irresponsible. There will be a time after the emergency part when we need resources to rebuild, opening the taps now without any clear definition of how and when it would be turned off is a recipe for further disaster. What constitutions when we’d end this support and people would have to move onto regular social welfare? There’s nothing on that.

    Other than raiding the current cash balances, it appears that Michael has nothing to say about how we’d fund social welfare after the emergency period.

  3. Cian

    I agree we need to do something like this to keep the country going.

    I disagree that (a) it is not a significant amount and (b) we can use the “cash balances of over €20 billion”. (there is ‘only’ €18bn in cash)

    The cash balance is about 10% of the national debt – which is in line with the cash balance that Ireland has always held.
    In 2020 there is €24bn needed (https://www.ntma.ie/business-areas/funding-and-debt-management/statistics/exchequer-funding-needs-and-sources-1) which we need to either borrow or use the cash balance. At the moment we are due to use €8bn in cash.

    Secondly, the cash balance is used to smooth out the fact that each month the government’s spending doesn’t match the tax receipts – this is going to be even worse over the next few months as companies withhold their VAT and other taxes.

    We are going to run out of money fast.

    My hope is that the ECB print a few €trillion and share it among the Eurozone countries to pay everyone. This will cause the Euro to lose value – but that isn’t a huge problem compared to a global meltdown.

    1. V

      I suspect there are people/ well certain groups if ye know what I mean, banking on the €uro to crash, and have gone in heavy
      and may have encouraged the blind eye approach to Italy

      In fairness if it wasn’t for videos from Italian Medics we still may not have witnessed the full catastrophe there until last week

      Its all taken a very seedy turn imo

      And the Paddys will not be in control of our own decision making – I fully expect the Central Bank to wait until Thursday Friday before they say another word

      btw, has anyone noticed the different values for the Apple Tax held in escrow?
      I’ve seen values go from 13.5 up to 19.5 bill

      Its an easy target I know, and not the answer

      and good to see you back Bruddar xV

      1. Brother Barnabas

        we should establish a national government, stick RBB in as finance minister, snatch the apple cash, spend it, disband the national government- and then Pascal can come back in and shrug his shoulders to the international money folks and blame it on the damned lefties

        (thanks Frillz)

      2. Cian

        There is €14.3 billion of Apple back-taxes (incl. interest) in escrow.

        This means that neither Ireland nor Apple have access to the money until the EU courts have reached a decision.

  4. Harry M

    An excellent piece, and needs to be read in conjunction with Cian’s comment, which i’m sure govt departments are doing when they read these submissions.

    Also, saw you on the news the last night Mick and you weren’t how i pictured you from your picture, you’re more the eccentric professor type!!

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