Making Work Pay More: Recent Initiatives

June 16, 2015 | Budget Perspectives

Authors: Michael Savage , Brian Colgan , Tim Callan , John R Walsh

This paper examines the financial incentives to work implicit in the Irish tax and benefit system, focusing in particular on incentives facing those who are unemployed and in receipt of Jobseeker’s Benefit or Jobseeker’s Assistance. The results, based on an analysis of current incomes, benefits and taxes, suggest that more than eight out of ten of these unemployed jobseekers would see their income increase by at least 40 per cent upon taking up employment. Fewer than 3 per cent of these individuals would, in the short-term, be financially better off not in work. The risk of facing weak financial incentives to work is higher for unemployed persons with a spouse and children, as the income support goal of the welfare system means that they tend to have higher welfare payments. However, even among that group, fewer than 1 in 15 would be financially better off not working. Our analysis shows that a recent policy initiative, the Back to Work Family Dividend, announced in Budget 2015, clearly improves the immediate financial incentives to work for this group.

How do these findings change when account is taken of the fact that many unemployed people would qualify for a Medical Card? Those returning to work from long-term unemployment may qualify for retention of a medical card for three years, but might lose it on income grounds thereafter, as might those returning to a job from an unemployment spell of less than a year. We examine this issue using average values for Medical Cards, based on the usage by current recipients. The overall findings on work incentives are not substantially altered on this basis, even though the special scheme for retention of medical cards is not taken into account. However, in individual cases where families make much greater than average use of a Medical Card (e.g., because of chronic illness), there may be greater impacts.

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