Minimum wage has failed in its stated goal of reducing poverty.
Job creation must be priority.
Minimum Income policy will make it profitable to work.
ISME, Tuesday 24th February 2015.
Speaking at the Oireachtas Committee on Jobs, Enterprise & Innovation the ISME CEO, Mark Fielding, called for the abolition of the National Minimum Wage (NMW), as it had failed in its stated task to address poverty. He called on the Low Pay Commission to concentrate its efforts on projects to assist job creation rather than finding excuses to increase the National Minimum Wage. The Association was proposing a Minimum Income policy, which would include Earned Income Tax Credits to encourage people to take up jobs rather than remain on the dole.
CSO figures on income and living conditions show that consistent poverty has increased since 2004 and deprivation rates are steadily increasing despite a 55% increase in the National Minimum Wage since its introduction in 2000. The consistent poverty rate is highest among the unemployed at 19.2%, while those at work have the lowest consistent poverty rate at 1.9%. These figures would point to the fact that employment is a much more important factor in the fight against poverty, while the blunt instrument of a NMW and the resultant knock-on effects of pay increases will reduce employment.
“We don’t have to wait for CSO figures to see that the NMW is a failure, just listen to Father Peter McVerry, on a daily basis draw attention to the increase in homelessness. People are not in poverty because the minimum wage is too low, or because their hourly pay is too low, even when they make above the minimum wage. People are in poverty because they are not working or not working enough. They need jobs, not an increase in the minimum wage. The reality is that almost one in four people aged under 60 live in households where no one works, which is more than double the EU average,” Fielding told the Oireachtas Committee.
“Given the still fragile nature of Ireland’s economic recovery and the very difficult environment for most SMEs, the notion of increasing the National Minimum Wage, which would have a push through effect on wages up the line, does not make any sense. It would increase the cost base for business and would undermine the cost competitiveness of the economy. It would fly in the face of the aspiration to make Ireland the ‘best small country in the world in which to do business’ and the aspiration to preserve and improve the competitiveness of the economy.”
The Government could introduce an Incomes Policy which could include an Earned Income Tax Credit, which could be a process to remove all tax and other deductions on income that equate to two-thirds of the average industrial wage of €32,000 ensuring that individuals can earn up to €20,000 per annum before being taxed.
This has the advantage of:
Removing all low paid employees from the tax net.
Enhancing the progressive structure of tax policy.
Making gainful employment more rewarding than the live register.
Fulfils the government obligation to redistribute income through the tax system.
Take the onus and cost of income distribution from employers.
When low-wage workers are supported through tax cuts and rebates, then, being more equitable, all taxpayers share the financial burden.
The Association recommends that the Low Pay Commission investigate and cost this proposal as part of their work.
“The Government should use the tax and welfare system to put money into people’s pockets, rather than facilitating and encouraging an economically damaging upwards spiral in wages. The notion of pushing up wage costs at this juncture fails to recognise the business realities in what is still a very challenging economic environment”, concluded Fielding.