Ibec urges Government to cut social welfare rates by 3%

APRIL BUDGET:EMPLOYERS ARE urging the Government to reduce social welfare rates by 3 per cent in its supplementary budget next week.

In a submission published yesterday, employers’ group Ibec said that an adjustment of €3 billion in net terms was the most that the economy could bear in the current point of the business cycle. It said that two-thirds of this should come from expenditure reductions and one-third from increases in taxation.

Ibec said that expenditure on public-sector pay and pensions, as well as on the provision of current services, should be cut by 9 per cent, generating gross savings of €2.1 billion over the remainder of the year.

It said that reducing welfare rates, to bring them into line with changes in the cost of living, would result in savings of €400 million this year.

Ibec also said the Government should establish a working group to examine the current structure and sustainability of the social welfare system. “The group should take account of available resources, the impact of deflation and potential difficulties in relation to welfare traps as wages decline. Recent OECD research shows that replacement rates in Ireland are very high by international standards. This and a range of other dimensions of the Irish social welfare system must be fundamentally reappraised in light of the predicted decline in living standards”, it said.

Ibec also called for the existing income levy to be adjusted so that it yielded an additional €1.2 billion in gross terms over the forthcoming eight months of the year.

However, it argued there should be no increase in corporation tax, employers’ PRSI, excise levies or VAT.

Ibec said that €1 billion in funding originally allocated to the National Development Plan should be redirected to enterprise supports to sustain as high a level of employment as possible.

The employers’ group also warns that a loss of competitiveness of about 15 per cent experienced during the current decade had to be corrected rapidly. This could involve wage cuts of about 10 per cent across the economy, it said.

“As a very open economy, Ireland needs to make adjustments to income levels over the next two years if business is to be competitively placed to reap the full benefit of the global upturn. We estimate that wage levels require a downward correction of the order of 10 per cent. Many companies are already taking such action; society needs to be convinced of the necessity to achieve wage reductions on an economy-wide basis.”

Ibec forecasts that, on a pre-budget basis, the economy will contract by 7.5 per cent this year.