Thanks also for the opportunity to talk to you on this.
I am going to try to cut my cloth to my measure here and keep what I say to what will fit into 10 minutes. I've sent you some information in advance.
There are two main areas I want to talk about. One is to do with what is sometimes called “poverty-proofing”, or, more recently, “poverty impact assessment”. It has to do with the monitoring of how major policy, particularly tax and welfare policy, impacts on poverty, and the implications of that.
In the second part, as an economist I suppose I want to play to my comparative advantage and try to spin a story around the big picture of how we moved from an economy with 15% unemployment to one with 5% or less, and the associated changes that Gerry was talking about, and try to fit that together in a story.
First of all, in terms of the poverty impact assessment, there is a general idea in the strategy that Gerry was talking about that government departments would assess their policies and programs at the design and review stages to see what impact they would have on poverty or on inequalities that are likely to lead to poverty. I want to focus in particular on how that's done in relation to tax and benefit policy, or what you might talk about as tax and social security policy.
There the idea is that a lot of the action is around what happens to people who are on welfare, or on social security more generally, and the payment rates they receive in relation to other people in the economy at a time of very rapid growth. We've used for that a tax benefit model that is sometimes called a microsimulation model, of which you have a number in Canada. I know Statistics Canada is involved in that sort of work as well.
We would look at trying to compare the impact of each year's budget in setting major tax and social security policy parameters or rates of payment and so on. We'd look at the impact of the actual policy changes compared to a neutral scenario. I won't go into detail on the construction of that, but essentially it involves a distributionally neutral scenario that involves roughly indexing the rates of payment and tax bands and so on in line with wage growth, with wages being the dominant form of income in the economy.
This is something that has been done in the Irish context with Gerry's department, the Department of Social and Family Affairs, and with the Department of Finance, which actually undertakes that as part of their annual budget documentation.
I'm not sure if you have some slides I sent over, but it's intriguing to see that in comparing five years in the mid-1990s--1993 to 1997--and then a more recent period, the distributional pattern associated with the policy changes over those periods is quite different.
Now, I don't want to suggest that this is entirely to do with this measurement and modelling approach, but I think, as Gerry was saying, that when attention is focused on something--when it is made measurable and monitorable--it does have implications for the outcomes you get, and you'll see in that comparison that in the later period, when this had taken hold, the distributional pattern is much more strongly pro-poor, and that there is in fact an associated reduction in the general measures of poverty.
The flip side of that coin is perhaps well illustrated by recent developments in the U.K. that you may have come across: a big political reaction to the abolition of the 10% rate of tax. One aspect of that again has to do with this issue of the choice of targets and which targets are available.
In the U.K., there is a target for reduction of child poverty. There is no target for the reduction of general poverty. In that setting, it's easy to see how a focus exclusively on the child poverty element can make something seem like a good idea when, if the more general target were also in use, that might have been headed off at the pass.
I'm going turn to the second half of what I wanted to cover, which is to fit together some of these ideas about what's going on in the general economy and the evolution of poverty in Ireland. I think it's pretty clear from comparison with best-practice countries such as the Scandinavians that the reduction in poverty can't be done simply on the basis of paying more in terms of welfare rates, nor can it be done simply in terms of a strategy that relies purely on work, which may be the ones adopted elsewhere, but the combination of both of those is very powerful.
In the Irish context, for reasons I won't go into because they're quite complicated, it's not a single-factor explanation for what happened in terms of what's often called the Celtic Tiger, but the unemployment problem was tackled and solved, with the rate falling from 15% to 5%. That's the first part of the action, but in the second part of it, there are substantial increases in welfare payments, in the first place, for those of pension age, and at a later stage, for other rates of welfare payment. With that combination of scenarios, there have been significant reductions in poverty on the usual measures in Ireland.
One of those measures is what's termed “consistent poverty”, which was developed particularly by colleagues of mine at the ESRI, Brian Nolan and Chris Whelan—and perhaps if you're interested in it, we can go into that in greater detail. The other measure often used is one that is more like relative income poverty, which is similar to the low-income measures used by StatsCan. But over the full period that we're talking about, there would have been reductions in both of those measures.
I hope that helps to give you something to quiz me about later, some leads, and I'll pass the baton to Combat Poverty.