Inequality and Eradication of Poverty in Ireland

Ireland is characterized for having a small open economy, where reducing inequality and eradicating poverty are key policies objectives. Even so, in Ireland there are many inequalities and a notable percentage of poverty. In relation to the most vulnerable groups, there is one of the highest rates of child poverty in Europe, especially in relation to the elderly. Income poverty and basic deprivation are the two of the main indicators of poverty in Ireland. “Income poverty is a relative measure and involves living in a household with disposable income, after adjusting for household size and composition, below 60 per cent of the median” (O´Hagan and Newman 2014).
In Ireland, the top 1% of earners pay 25% of the income tax. The ‘invisible hand’ of the market acts to allocate resources efficiently, but not necessarily fairly. There has been a progressive rise in inequality because of increased international trade with low wage countries and changes in technology which have reduced the demand for unskilled labour, basically trying to cut in expenses. One thing is clear, poverty levels cannot be attacked, if the inequality in force in Ireland is not remedied before, because that implies an almost immediate relapse to the starting point, and the problem is would never be solved.

With the uncertainty being created by Brexit, including the potential impact on the economy, this kind of clear policy commitment is even more important to protect the most vulnerable in Irish society. Ireland needs this kind of centralised policy commitment to mobilise a multi-departmental approach to the crisis of poverty. 15.7% of the Irish population currently live at risk of poverty. 1 in 5 children in Ireland today are living in households below the poverty line, plus 109,000 people with a job are living in poverty in Ireland today.

The Irish government’s budget in 2015 saw 36% spending on social protection, 24% on health, and 16% on education and skills. Thus, ¾ of spending went on areas which directly impacted on poverty levels and income distribution. There are three main policy areas which impact on poverty; employment, income support and services. Nearly half of those unemployed in Ireland, are unemployed for more than 12 months, putting them in the category of long term unemployed and severely increasing the risk of poverty. 80% of those in consistent poverty in Ireland live in households with little or no work. To be in the category of consistent poverty, is to be below the poverty line and to be deprived of two or more factors, according to the EU deprivation index. Examples include being unable to pay rent or bills, keep your home warm, by a TV or go on holiday etc. Maintaining and improving services such as education, health, housing, transport, childcare and eldercare are crucial to lifting people out of and keeping people from being in poverty.

In terms of education, people with third level education is estimated to double income, which would result in significant income redistribution, if those from lower income backgrounds were encouraged to go into higher education. The free education fees in Ireland help this, but the issues often start earlier on in life and thus should be addressed to ensure children from lower income families have the same educational support. Income support is also crucial to lifting people out of poverty. This includes child income supports, working age transfers, and pensions. Income outcomes are relatively unequal in Ireland, with 35% of the Irish earning less than 18k a year and contributing to approximately 9% of total income, however, social income improves this.

The government can help reduce poverty and income inequality in Ireland in many ways. Minimum wage laws, social security, negative income taxes and in-kind transfers all aim to help the poor. However, they also can have unintended side effects. Many see attempts to redistribute income as distorting incentives, altering behaviour and making the allocation of resources less efficient. For example, because financial assistance declines as income rises, the poor often face effective marginal tax rates that are very high and thus discourage the poor from escaping poverty on their own. High taxes to fund the redistribution of income may reduce the risk taking of the rich and discourage incentives to work and invest etc. Consequently, many see the free market as fair, because labour and capital are rewarded according to productivity. To help reduce poverty, the government and the international community can provide in kind transfers, specifically food for work or vaccines etc; conditional cash transfers, which depend on work or the fulfilment of education; improve health, education and social policy; market access, i.e. trade not aid; develop inclusive policies that target vulnerable groups and provide increased security. Policies which have worked previously are the improvement of education, as it helps the redistribution of income and improves equality of opportunity.

The Government must this year set a 5-year plan for eradicating poverty in Ireland. Poverty needs to be addressed immediately. Without a multidepartment approach, the consequences for the poorest in our society will reverberate down to the next generation. The policies to solve poverty would need to include ensuring social welfare payments, which are set at an adequate level and indexed, making personal tax credits refundable, introducing a cost of disability payment, and introducing a living wage. Having access to high quality public services such as education, healthcare and others, and an appropriate accommodation is also important. Without adequate social infrastructure and services, it is impossible to achieve the minimum standard of living to which all citizens, from children to older people. In order to provide high-quality public services, the Irish Government needs to collect adequate revenue to resource them, which require an increase in the overall taxes.

Development is to improve the economic well-being of a community. This can be done by improving job creation, job retention, tax base enhancements and quality of life. The government has a role in economic development. Firstly, the government can provide public goods by investing in infrastructure. This can be physical infrastructure such as roads, airports and ports; economic institutions; social infrastructure such as an education system, public health system and social system. The government can also create incentives to invest, giving breaks to new entrepreneurial ideas, for example. The government can also redistribute income more evenly, this is usually done through taxes. Progressive taxes mean the more you earn, the more you pay (in comparison to a regressive tax).

In conclusion, reducing poverty and income inequality, and promoting growth in lesser developed countries, is usually a result of various factors. Domestic institutions, such as political, social and economic institutions are key, including a fairness of process in law, politics and the markets. Factor endowments are also important, including a country’s geography, climate, minerals etc. International forces and external actors also have role to play, especially with regards to producing positive externalities from trade policies. Asset determined level of income is also important, with ownership and control over productive assets raising many out of poverty, particularly as a result of land distribution. Taxation and social welfare are also crucial as they determine personal income.