In-depth Analysis of Budget 2011

In-depth Analysis of Budget 2011
Submitted by paulmeade on 8 December 2010 - 4:47pm
Introduction and broad context
Budget 2011 is the fourth in the set of austerity budgets introduced following the initial economic collapse of September 2008 (previous budgets being December 2008, April 2009 and December 2009). These set budgetary policy on a period of contraction until a recovery in 2011 and a restoration of normal budgeting by 2014.
The second economic collapse of autumn 2010, leading to the €85bn rescue package agreed with the European financial institutions and the International Monetary Fund in November 2010 set budgetary policy on a course of severe contraction, €15bn over 4 years, so as to reduce debt as a proportion of GDP to 3% by 2014, with €6bn to be made in the 2011 budget.
The four-year plan accompanying the EU/IMF/ECB rescue set the 2011 budget as the first of a series that will reduce spending and increase taxation over 2011-15. Whereas the first contraction was largely dealt with by spending cuts, the second contraction, which is magnitudes more severe, is accompanied this time by significant tax increases.
The Wheel is seriously concerned about the ability of Ireland’s charities to withstand the negative impact of Budget 2011
The Wheel’s primary concern is for the impact of budgetary changes on the voluntary and community sector and those whom it serves. A strong voluntary and community sector is essential for any modern, pluralist and democratic society and is necessary for re-building that society after the present economic collapse.
Those who it serves are those who are most vulnerable, for they are often the poorest, most marginalized and with the least political influence: those on low incomes, dependent on social welfare, people with physical or intellectual disabilities, or living on the margins of society, such as homeless people and Travellers.
The Wheel has already expressed its concern that in the initial budgetary contractions, both voluntary and community organisations and the poor suffered disproportionately.
Budgets for voluntary and community organisations fell in the range 8% to 10% in 2009 and again by a similar pattern in 2010, at a time when national spending actually rose.
It is estimated that these changes have led to a contraction of the voluntary and community sector by -15% by the end of 2010.
The social impact of the 2011 budget
First, Budget 2011 will have a significant impact on those dependent on social welfare. The principal changes are as follows:
• General reductions on social welfare of -4% (excluding the pension). This means €8 weekly for most rates, €6 weekly in the case of job seeker allowance
• Reduction in child benefit of €10 monthly (to €140) (additional €10 reduction for third child)
• Additional €2 weekly contribution by recipients to rent supplement
• €8 weekly reduction in FAS training allowances
• Reduction in weekly VTOS bonus from €31.80 to €20.
These measures will cause considerable hardship for the poor of Ireland, who are principally the unemployed, children, lone parents, the low-paid and marginalized groups (e.g. homeless people and Travellers). In the case of child benefit, we know that the systematic increase of child benefit until 2009 led to an identifiable (if modest) reduction in child poverty. These decisions will drive up the level of child poverty again.
Second, the budget is likely to have a significant effect on those at work but in poverty. Although the government has a mantra that ‘the best solution to poverty is a job’, this ignores the reality of low pay and limited opportunities for those in the least well paid sections of the workforce.
The four-year plan announced a reduction in the minimum wage from €8.65 an hour to €7.65 an hour while the budget announced 10% reduction in pay for new public service entrants, the bottom grades of which are low paid. This will give additional impetus to the downward drive in wages.
There is a danger that the budget will create a number of poverty traps. Perhaps the most severe poverty trap is for those whose income is just above the qualification level of the medical card (with its attendant benefits and entitlements) but whose incomes are low and are bringing up children.
For example, in the case of families with school-going children, there are numerous additional charges in education which will be passed on to parents. Some are potentially a considerable burden to parents on low incomes e.g. school transport charges (up to €50 primary, €350 secondary, up to €650/household). They will reverse progress that had been made in reducing the hidden costs of ‘free’ education and will affect those most in need of education. Although medical card holders are exempt, all working families will be obliged to pay, contributing to a poverty trap. Coupled with the reduction in child benefit, this is likely to lead to an increase in child poverty.
The live register is currently at 438,000, and unemployment stands at 13.5% of the workforce. The budget announced 15,000 fresh activation places, divided equally into skills, development and internship; work placement; and a new Community Work Placement Scheme. The budgetary response to the problem of unemployment is wholly insufficient. Unlike other countries in Europe, there is no effective budgetary stimulus to create jobs.
Budget 2011 and its effect on social policy
Much of the significant meat of the 2011 budget is to be found in the departmental estimates. If we look at the headline figures:
• The four-year plan projects overall government spending to fall from €61.2bn to €59.1bn, with current spending falling from €54bn to €48bn
• For 2011, spending on current services is to fall from €54.5bn to €52.8bn
• This gives us a general cut in government current spending of -3.2%. This is the standard against which departmental and detailed budget line cuts should be measured.
As was the case before, the burden of savings to be achieved in 2011 falls on social policy areas. If we look at the €2,192m savings to be achieved in 2011, the main impact falls on social protection with €873m in cuts, health services with €746m in cuts, followed by education with €170m in cuts.
Even though the four-year plan specifies that the numbers of public servants remain flat (around 308,000), the most substantial reductions are to take place in the health services (reducing from 111,000 in 2008 to 100,000 by 2014).
If we look at departmental estimates in detail, we get:
• The social housing budget is down from €829m to €529m, -36%. This is the budget line which provides housing for people on low incomes and for voluntary and cooperative housing associations
• The regeneration budget, which is attempting to rebuild the shattered communities of Limerick and inner city Dublin, is down from €241m to 204m, -15%
• Funding for private housing adaptation, which is vital for the quality of life of people with disabilities, is down from €94m to €72m, -23%
• The budget for local authority disability services, €8.2m in 2010, is zeroed
• The budget for the Irish Youth Justice Service, which is essential to help young people at risk of offending, is reduced from €51.6m down to 39.3m, -24%
• In education, there is a 5% reduction in capitation funds for four key programmes that combat disadvantage: adult literacy, community education, school completion programme, Youthreach.
• Prison education services are vital for the rehabilitation of offenders. They are a vital, low cost, high-impact service and their budget is down from €1.6m to 1.3m, -24%
• The RAPID fund to assist disadvantaged rural areas is reduced from €5.6m to €3.1m, -47%
• The CLAR fund to assist disadvantaged rural areas is reduced from €8m to 500,000, -94%
• The Department of Environment, Heritage and Local Government budget forcommunity and social inclusion is reduced from €5.6m to €2.9m, -47%
• Funding for sport in disadvantaged areas, €395,000 in 2010, is zeroed
• Funding for the National Childcare Investment Programme is reduced from €105m to €85m, -18%
• There is a reduction in the subsidy for public transport of -4%, from €288m to €275m, a support level which is already low by European standards. This is likely to lead to fewer bus and rail services for those who depend on them
• Funding for the medical card scheme is set to fall from €2.8bn to €2.4bn, down -12%. Granted the significant fall in incomes expected in 2011, one might have expected more people to fall below the threshold for the means test. Such a reduction suggests that the threshold will be brought lower still, reducing the numbers of medical card holders, adding to the poverty trap of those just above the threshold.
• There is a miscellany of cuts in a number of justice-related areas. These are theRefugee Fund, down from €1.8m to €1.5m, -15%; the status of people with disabilities, €2.5m to €2.1m, -15%; disability projects, down from €469,000 to €187,000, -60% and equality proofing, down from €310,000 to €300,000 -68%
If we look at the remaining institutions that promote the social well-being of the state, the budget for the National Economic and Social Development Organisation, an organisation essential for social planning, is reduced from €3.3m to 2.3m, -30%.
• The budget for the Equality Authority, which took a -43% reduction last year, was reduced from €3.2m to €3m, -4%. Funding for national women’s organisations is to be reduced from €558,000 to €537,000, -4%
• Funding for the Minister for Integration is reduced from €5.3m to €4.1m, -22%
• The budget for the National Disability Authority is reduced from €5.6m to €5.1m, -8%
• The Irish Human Rights Commission, which suffered a 24% reduction last year, sees its budget fall from €1.5m to €1.4m, -5%
• The allocation for the Family Support Agency is reduced from €33.5m to €31.7m, -5%
• There have been substantial reductions in the allocations from dormant accounts, as follows:
o In the Department of the Environment, Heritage and Local Government, the budget for economic and social disadvantage (dormant accounts) is reduced from €1m to €282,000 -72%
o In the Department of Education & Skills, the budget for educational disadvantage (dormant accounts), is reduced from €5m to €2m, -60%
o In the Department of Community, Equality and Gaeltacht Affairs, one initiative tackling economic and social disadvantage (dormant accounts) was reduced from €6.6m to €2m (-70%) and another from €1m to €240,000, -75%
o In the Department of Health & Children, funding for economic and social disadvantage (dormant accounts), €9.3m in 2010, is zeroed, while the early intervention programme, (dormant accounts) is reduced from €5.3m to 4.3m, -18%
o Funding for sport in disadvantaged areas (dormant accounts) in the Department of Tourism, Sport and culture was €395,000 in 2010 but zeroed this year.
Budget 2011 and its effect on voluntary and community organisations
As was the case in 2009 and 2010, the burden of cuts falls disproportionately on those departments and budgets where voluntary and community organisations are funded.
• The Health Service Executive budget, which is the largest (albeit indirect) funder of voluntary and community organisations, is down from €7.664bn to €7.249bn, -6%, which is likely to lead to a funding cut for these organisations at least that level. The level of HSE grants to voluntary hospitals is reduced by -7%, confirming this as the range for the headline figure in the health service.
• The principal direct funder of voluntary and community organisations is the Department of Community, Equality and Gaeltacht Affairs. Its budget is reduced by -16%, from €366m to €307m. Within that:
o The general fund for voluntary and community organisations, which includes local grants, Senior alert, volunteering and support for national organisations, is down from €14m to €10m, -29%. We do not yet have detail on the individual headings
o The Local and Community Development Programme is reduced from €67.5m to €63.5m, -6%
o Action against drugs is led by voluntary and community organisations. The main fund is provided by the Department of Community, Equality and Gaeltacht Affairs and it is cut from €36.1m to €33.7m, -7%. The Department of Education and Skills contribution to local drugs task forces is reduced from €2.4m to €899,000, -63%.
Ireland stands out internationally for the level of voluntary sports activity. Here, funding for sporting bodies is reduced by almost half, from €48m to €28m, -42%.
In only a small number of social policy areas is the cut less than the national average of -3.2.%. These are the National Educational Welfare Board (-2%), adult education (-1%) and some funding heads which are not cut at all, such as third level alleviation of disadvantage, gender mainstreaming, the Free Legal Advice Centres and civil legal aid. Only one shows a significant increase, COSC funding for the prevention of violence against women (+18%).
There are some important assumptions in the budget, which make the government’s strategy questionable on its own terms. First, there is an assumption that economic growth will generate sufficient income for services to be maintained in 2011. Granted the deflationary effect of the €6bn cut outlined here, this is doubtful. An example of governmental optimism may be seen in the anticipated savings from labour market activation, €100m, reducing numbers on the live register. It may well be the case that there will be fewer unemployed, but this is more likely to be due to emigration.
A significant element in any budget is fairness and perceived fairness. Although the government announced further reductions in the pay of ministers, they are estimated to be proportionately less than the reductions of those on the minimum wage and must be set in the context of some of the highest ministerial pay in Europe. Although a maximum wage was set for the public sector (€250,000), one was not set for the private sector. The only area where tax increases have been ruled out is in company taxation. At the start of the economic crisis, the European Commission spoke of how a sense of solidarity must inform governmental responses, but it is difficult to discern such a sense in Budget 2011.
Key points and messages emerging from this analysis
In summary, the following are the key issues emerging:
• Reductions in welfare will add to the level of hardship experienced by the poor. The process of immizerization will intensify;
• Specifically, there is likely to be an increase in in-work poverty and child poverty;
• The only economic stimulus is for 15,000 places, which will reduce the live register by only 3.4%;
• Social protection, health and education bear the main share of cuts and savings;
• Although the overall level of cut in government spending is -3.2%, it is much higher in the social policy area. The government has continued its policy of applying differential cuts, with much higher levels of cuts in critical areas such as social housing (-36%). A number of funds important for severe disadvantage have been significantly cut back, such as regeneration (-15%), RAPID in urban areas (-47%), CLAR in rural areas (-94%), youth justice and prison education (both -24%);
• Dormant accounts funding is reduced by very large amounts: 18%, 60%, 72%, 75% and one zeroed;
• Institutions that are important for social policy and social planning have lost between -4% and -30% of their budgets;
• Voluntary and community organisations are again disproportionately affected. In the main area of funding, health services, the headline cut is in the order of -6% to -7%. In the Department of Community, Equality and Gaeltacht Affairs, the principal fund is cut -29%. Funding for local development is reduced by 7% and for local action against drugs, over -7%. Grants for sporting organisations are down -42%;
• The ability of the government to draw in the necessary revenue in 2001 to pay for state services is based on unwarranted assumptions of economic growth;
• The budget lacks fairness, with those responsible for the current crisis being expected to shoulder a lesser burden than what is required of the low waged. It lack the sense of solidarity necessary to generate public support.
Conclusion
Budget 2011 fails to protect vulnerable people and threatens survival of charities working with Ireland’s poorest.
In September this year The Wheel presented Government with a Five-Point Plan to Protect Vulnerable People in Budget 2011. It is now clear that Government has failed to protect vulnerable people in Budget 2011 and poor, sick, disabled and low paid people will pay a totally disproportionate price to deliver economic recovery– but not social recovery - for our country.
The Wheel asked Government that Budget 2011 would ensure that
• People who can afford it contribute more to the cost of recovery.
• We take an integrated approach to achieving social and economic recovery.
• Our public services - and the people who depend on them - must not be sacrificed to fund a superficial recovery.
Far from taking an integrated approach to achieving social and economic recovery,Budget 2011 will create serious difficulties for those dependent on social welfare and for those working on low pay. Poor people will be hit many times by this budget, with a cut in the minimum wage rate, cuts in social welfare rates for unemployed people, disabled people and carers, a reduction in child benefit, increased tax and universal-social-charges and reductions in rent supports.
Meanwhile, people on higher incomes are making a disproportionately small contribution towards the cost of recovery in Budget 2011. The impact on people on social welfare and low pay is much greater than on higher earners and Budget 2011 will inevitably lead to increased poverty rates.
Statistics released last week by the Central Statistics Office ( CSO) for 2009 show that levels of consistent poverty rose from 4.2% in 2008 to 5.5% while the numbers unable to afford basic requirements went up by 25%. This is even before the impact of cuts in Budget 2011 are taken into account. It is indeed a source of shame that Ireland’s poor and vulnerable people have been sacrificed to fund a superficial “economic” recovery in Budget 2011
In our 5 Point Plan to Protect Vulnerable People The Wheel asked Government to increase the tax take while keeping Ireland a low tax country. We pointed out that targeting Ireland’s lowest earners was not the best or fairest way to widen the tax base or increase the tax-take.
While Government has increased the tax take in Budget 2011, by bringing over 100,000 lower paid workers into the tax net, Ireland’s total tax take is still only 30% of GDP which means Ireland is still an ultra-low tax country by European standards: People who can afford to have not been asked to contribute their fair share to the cost of recovery in Budget 2011.
The Wheel asked Government to secure better value for money in the delivery of our public services and pointed out that while targeted expenditure cuts were undoubtedly required in Budget 2011, vulnerable people should have been protected. We noted that a good starting point would have been the elimination of the waste identified in the Comptroller and Auditor General’s reports. Budget 2011 does not set any financial targets for achieving better value for the delivery of our public services – financial savings that COULD have reduced the impact of budget 2011 on people dependent on benefits and on the working poor.
The Wheel asked Government to reform the public sector by implementing the recommendations contained in the report of the OECD – again Budget 2011 contains no vision as to how our public services can be restructured around meeting the needs of vulnerable people.
Finally, The Wheel argued that Government should be focusing expenditure on the common good to provide the public services required by vulnerable people. Instead, Government has reduced key budget lines for supporting the thousands of charities and voluntary organisations that provide essential services for vulnerable people. The Department of Community, Rural and Gaeltacht Affairs appears to have been singled out for a punishing 16% budget cut. These cuts will impact completely disproportionately on Ireland’s most vulnerable communities.
Key budget lines for Government support for charities and community groups in other departments such as the HSE; Justice and Law Reform; Environment, Heritage and Local Government; and Education and Skills also appear to have been severely cut. As a result, The Wheel is seriously concerned about the ability of Ireland’s charities to withstand the negative impact of Budget 2011 and to continue to provide essential services and supports for Ireland’s most vulnerable people.
Meanwhile senior bondholders, the beneficiaries of the Croke Park deal and beneficiaries of Ireland’s 12% corporation tax rate are all exempt from making a contribution to achieving a fair and just social and economic recovery.