7 Auditoría Interna y
PROBLEMAS FRECUENTES EN LA ETAPA FINAL
per cent of GDP at factor cost Country
DK S FIN B NL UK IRL AUS USA
(a)
Gross public social expenditure 35.9 35.7 33.3 30.4 27.1 23.8 19.6 18.7 15.8
lessdirect taxes
and social contributions 5.1 4.4 4.4 1.8 4.4 0.4 0.3 0.3 0.4
lessindirect taxes 4.1 2.8 4.2 2.8 2.4 2.3 2.5 0.8 0.4
plusnet tax breaks for social purposes
(ex. pensions) 0.0 – 0.0 0.5 0.1 0.5 0.4 0.3 1.4
Net current public
social expenditure 26.7 28.5 24.8 26.3 20.3 21.6 17.1 17.9 16.4
plusnet current mandatory
private social expenditure 0.2 0.2 0.1 1.3 0.5 0.3 0.0 0.9 0.3
plusnet current voluntary
private social expenditure 0.6 1.9 0.8 0.9 3.3 2.9 1.5 3.1 7.8
Net total
social expenditure 27.5 30.6 25.6 28.5 24.0 24.6 18.4 21.9 23.4
Net tax breaks towards
pensions (where calculable) – – – 1.2 2.7 2.7 1.6 1.1
(b)
Direct tax and social security contributions paid as a percentage
of gross public transfers 23.9 22.1 19.5 9.0 23.0 2.8 2.5 2.9 4.0
Implicit average indirect tax rate on consumption
out of benefit income 25.5 17.9 23.1 15.5 16.3 14.9 20.7 7.5 5.2
taxes (only 5 per cent in the US); private social expenditure in the US adds one-half again to the country’s public social spending (it is relatively insignificant in Denmark). It is noteworthy, however, that Ireland’s low ranking on gross public social spending falls even lower when total net social expenditure is estimated. Among the Anglo-Saxon cluster of welfare states, Ireland was estimated to have the lowest level of private social spending. This relative position is not changed when tax breaks for pensions (particularly generous in Ireland) are included. Secondly, in some countries, governments levy significant direct tax (income tax and social security contributions) on social welfare payments. For example, direct taxation ‘claws back’ for the Exchequer some 19 to 24 per cent of gross expenditure on cash transfers in the Scandinavian countries and the Netherlands. By contrast, Ireland and other Anglo-Saxon countries tax cash transfers lightly or exempt them altogether (as when they are means-tested). It was estimated that only 2.5 per cent of gross public expenditure on transfer spending returns directly to the Exchequer in Ireland (principally from taxation on sickness benefits and private pension benefits). However, indirect taxation also impacts on welfare incomes (VAT and excise duties). In general, the same countries that levy significant direct tax on welfare incomes also have the highest incidence of indirect tax on the same incomes. On this front, however, the liberal welfare states of the English-speaking world divide between those where indirect taxes impact very lightly on consumption out of welfare incomes (USA and Australia) and the UK and Ireland where their impact is significant (despite the zero rating of many basic foodstuffs, children’s shoes and clothes in the latter).
The reasons for the very different tax treatment of welfare incomes deserve some exploration. Direct taxation of welfare payments is significant in some countries because their rates of payment vary widely enough to allow the progressivity of the income tax code effect a second round redistribution among welfare recipients themselves. Welfare payments, in turn, vary significantly largely because an
earnings-related element to benefit payments has been retained. This is
considered worthwhile as it attaches high-earning groups more strongly to the public insurance system and minimises their incentive to secede from it. It is also likely that countries where transfer payments attract significant taxation make those payments at a higher level to compensate recipients for the tax and charges they must meet. This, however, can be considered worthwhile and not inefficient because it lowers the withdrawal rate that benefit recipients would otherwise face on moving into employment. It also serves to maintain their attachment to the social insurance fund for other contingencies and their status as income taxpayers. On indirect taxation, it is the case that, in so far as expenditure on social protection is funded by it rather than through higher PRSI, a wider tax base is being used, and in a way that occasions less damaging consequences for employment. However, it remains true that indirect taxes, generally, are regressive, i.e., take a larger slice out of low incomes than out of high incomes. The regressive nature of indirect taxes is to some extent addressed when and as welfare payments are indexed to the Consumer Price Index, but it can happen that rises in the CPI underestimate increases in the cost of living for those on the lowest incomes.
The most important reflection to make on the patterns revealed in Table 4.8, however, may relate to the varying mix of public and private social spending across countries. Very different distributional consequences can attach to resources being devoted to private social spending rather than to public social spending. The social compositions of the groups benefiting from public and private social spending respectively tend to be very different.15
For example, the US was estimated to be devoting as much of its GDP to social services and benefits as the EU-15 on average in 1997 but almost one half of the US spend was private social expenditure. As a result, a much larger percentage of those who are poor in the US remain without social protection than in Europe where almost all social spending is done by the public sector.16
The main question the OECD accounting framework sets out to answer, viz., what part of a country’s resources are devoted to social protection, may not, in the final analysis, be as important as the distributional question, viz., what are the minimum standards of social protection that members of a society are guaranteed even if they have little or no independent income? Several forms of higher private social spending can completely bypass people in the weakest market positions (e.g., rises in tax expenditures for social purposes) while forms of higher public spending (e.g., rises in means-tested benefits) can be wholly confined to them.
In summary, on the basis of 1997 data, the OECD framework points to Ireland as a particularly low spender on social protection by EU and OECD standards, even though the framework seeks to contextualise the public part of social spending. Low levels of public social spending by international standards were not offset to a significant extent by higher private social spending in 1997. In fact, one had to go outside the EU to find a country that devoted a similarly small share of its national resources, public and private, to social protection at that time. Only Korea, Japan and New Zealand spent a smaller proportion of their GDP on net total social expenditure than Ireland in 1997 out of the 18 OECD countries examined by Adema (op. cit, 2001).
ireland’s social protection in a comparative context 113
15. Social insurance schemes in some countries are complex and tailored to specific groups of sometimes relatively privileged groups of workers. This tempers the assumption that public social expenditure is inherently more distributional than all its private counterparts (e.g., the funding of early retirement in Austria).
4.3.4 Why Ireland’s social spending appears low in international rankings The most important reason why social expenditure levels in Ireland are low compared to many other advanced industrial countries is that Ireland has a much smaller proportion of older people in its population than many of them. Only 15 per cent of Ireland’s population were aged 60 or over in 2002, a proportion which hardly changed on 1980 (Table 4.9). The contrast is particularly stark with other EU Member States, particularly those in southern Europe. For example, almost ten per cent more of the Italian population were aged 60 or over in 2002 than in Ireland, a proportion which had grown by 50 per cent since 1980.
Large elderly populations significantly increase the need for spending on pensions but also on health, disability and other social services. It is estimated that over one-half of total public social expenditure in the EU is accounted for by the needs of the elderly.17
Ireland’s relatively low pensions bill is further helped by the fact that the principle State pension scheme is flat-rated rather than income-related as in most other EU countries, and lower as a percentage of average earnings than elsewhere in the EU.18
These factors combine to make pension spending in Ireland — however expressed, as a proportion of GDP/GNP or per person aged 65 or over
in the population (Table 4.7) — by far the lowest within the EU. Pension
expenditure, however, is currently increasing steadily in absolute terms (Chart 3.1) and the ageing of Ireland’s population (the pensioner support ratio is projected to fall from 5.9 in 2002 to 2.0 by 205019
) will inexorably increase it as a proportion of GDP/GNP also. The estimates vary with the assumptions made but the scale of increase is substantial: Bennett et al (2003) calculate that paying the Contributory Old Age Pension alone at the rate of 34 per cent of average industrial earnings (the National Pension Policy target) would need 5 percentage points more of GDP by 2050 – they project costs as rising from 2.9 per cent of GDP in 2002, 4.5 per cent by 2025 and 7.9 per cent by 2050. Barrett (2003) estimates that funding total public spending on pensions will need 4.4 more percentage points of GNP, rising from 4.6 per cent of GNP in 2000 to 9.0 per cent by 2050. It will rise elsewhere in the EU too, of course, but growth in Ireland is projected to be above the EU average (a rise of 4.4 percentage points as against an average rise of 3.2 points), narrowing but not closing the gap between Ireland other EU member states (this is for public pension spending only).
Adjusting comparisons of social spending between countries to account for the age structure of their populations is more intricate than simply factoring out pensions. As people get older they are much more likely to use community health services, purchase medicines, consult specialists and spend periods in hospital; they are also much more likely to acquire a disability as a result of longer exposure to the risks and vicissitudes that are inherent to human living. Bennett et al (2003) estimate how much more is currently spent by the public health services in Ireland on disability care, medicines, community health services, and acute hospital care for each person aged 65 or over compared to each person aged under 65; they
114
17.Social Protection in Europe 2001.
18. National Pensions Policy Initiative (1998: Appendix H).
ireland’s social protection in a comparative context 115
Table 4.9