BUDGET PERSPECTIVES 2015, PAPER 3. Welfare Targeting and Work Incentives. June 2014

Savage, Michael and Callan, Tim and Keane, Claire and Kelly, Elish and Walsh, John R. (2014) BUDGET PERSPECTIVES 2015, PAPER 3. Welfare Targeting and Work Incentives. June 2014. [Policy Paper]

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Abstract

Tax and welfare policies must strike a balance between providing income support to those in need and maintaining a financial incentive to work. This paper focuses mainly on the latter objective, identifying the financial incentive to work as measured by the replacement rate – the ratio of out-of-work income to in-work income. While a high ratio is positive in terms of the income support function, it reduces the financial gain from employment. The analysis shows that high replacement rates tend to be found for individuals who receive payments in respect of adults or children who are financially dependant on a jobseeker. However, most of Ireland’s unemployed individuals are single or do not receive additional payments in respect of adults or children. The proportion of non-workers facing high replacement rates is similar to that in the UK. The Irish Rent Supplement scheme is one factor leading to more very high replacement rates than the UK’s Housing Benefit. Monitoring the impact of the shift to a new Housing Assistance Payment will be important in this context.

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