If the retired are not poor, is it right for them to keep all-day free bus passes?

There has been a considerable fuss over a suggestion for a modest scaling-back of the benefits to the retired. It was proposed that ‘free bus travel’ be available only at off-peak travel times. At all other times, free bus travel would continue to apply.

The fuss has been strikingly one-side: the proposal was denounced by politicians, interest groups and journalists. Otherwise, silence; including on this blog.

The case for this change is easily stated – rush hour is busy because of workers travelling to/from work at times they don’t control. So it is a more efficient use of the bus system that people with more discretion over when to travel, notably the retired, would use (free) buses only at other times.  (Of course they could travel as paying passengers at any time.) Nearly one-tenth of passengers on the buses at rush hour use free bus passes. So either we expand the bus system or we move bus-pass holders to (free) travel at another time and release a lot of bus space.

Available information suggests this change would also improve fairness. There is considerable evidence that the retired are not poor, either in income or in wealth terms. Removing a small fraction of the bus subsidy would seem to be fair, especially if it also made the bus service work better.

The CSO’s 2013 Household Finance and Consumption Survey (Table 12) indicates that in households where the head of household was under 35, median net wealth was €4,000. For households headed by a person 65 or older, median net wealth was €348,000. It seems legitimate to conclude that the retired are not poor in terms of their net wealth. (This is hardly surprising; they have had decades more than twenty-somethings in which to save. Grey and wrinkled has a few compensations.)

For incomes, the CSO Survey on Income and Living Conditions (Table 1e) reported that in 2016 median net disposable income (adjusting for household size) was €21,387 for those aged 18-64 and not a very great deal less, €17,956, for those over 65. So for every €100 of net disposable equivalised income of the median member of the first group, the median retired person has an income of €84. The costs of the retired are surely lower than those working (mortgage, children’s education costs)? In any case, according to the report (Table 2) those aged over 65, have a lower risk of poverty (10.2% v. 16.6%) and also a lower rate of deprivation (13.1% v. 20.9%) compared to those of working age.

Given the similarity of incomes, there seems a solid basis to say the over 65s are not poor in income terms either, compared to the working age population.

Yet the older generation have various non-means-tested benefits including free bus passes. They were also essentially exempted from the post-2008 income and benefit reductions. I will leave the inter-generational aspects of the planning laws for another occasion.

Subsidies for the retired was recently raised in the UK which “continue[s] to treat pensioners as though they need free travel, winter fuel allowances and the like, despite the fact they are on average now the best-off demographic group in the country.” In a comment pertinent to the Irish case, the writer argued that amongst the UK groups needing more public funds are children and the mentally ill. If money goes to the over-65s, it will be harder or impossible to finance the other programmes.

The broader setting for this discussion is whether our prevailing redistributive and other policies in fact discriminate against younger rather than older generations. Many of the retired and soon-to-be-retired, benefitted from lower costs of going to college, drastically lower house prices, and much more generous pension schemes that today’s twenty- than thirty-somethings will have. On top of this there are pensions, free bus travel and other benefits; some of this money may have more deserving uses, not excluding healthier public finances.

From this perspective, do we redistribute income on the basis of means or, say, voting propensity? Regarding the latter, a rough calculation (exit poll age data, total turnout, and population less non-nationals) suggests that in the 2016 general election turnout was 41% for voters under 24, and 61% for those over 65. 

How, then, was the bus-policy reform proposal responded to? It did not go down well! Its author was personally vilified and the proposal was drowned in ridiculous hyperbole, while more important aspects of the speaker’s policy recommendations at the conference passed unremarked. One Minister remarked that the civil servant’s suggestion was unprecedented. It’s not hard to see why.

There was the usual claim by a journalist that “free bus pass holders have contributed to the economy for decades” On that principle, shouldn’t everyone have everything free forever? (Where are our free newspapers?)

Senator Buttimer of Fine Gael demanded that the civil servant be fired. The Independent Alliance judged that this change would cause “severe hardship” and could jeopardise the ability of the retired to get to hospital. (Severe hardship? Really? No pensions, no cars, no taxis, no offspring, in Independent Alliance constituencies?)

Even the elusive Minister Ross took to the battlements to declare that the change would happen only over his dead body, although some think the Minister’s body has been alarmingly immobile since he took office. (Missing Minister.)  The Minister added that this modest change was no less than “an extraordinary assault on the rights of older people.” (An extraordinary assault?)

As for the temerity of the civil servant, I believe the department he works for is called Public Expenditure and Reform. His remarks were made at a conference where the OECD recommended that Ireland needs to focus more on evaluation of the impact of public policies. The responses amounted to saying: our supporters like this policy, we are not interested in any evaluation.

This sorry episode is reminiscent of the ‘anti-expert’ commentary of members of the Bertie Ahern governments. Minister Martin Cullen in the mid-2000s dismissed warnings of economic overheating contained in an ESRI mid-term review of the public investment programme, as merely the views of ESRI ‘sandal wearers’. He insisted that the government would press ahead in the face of the advice it had itself commissioned. Ten years on, some current Ministers seem to believe much the same thing.

The retired in the population used to be poor. That’s not been true for a long time. Policy has to catch up. The Government should seek to improve the efficiency of the transport system particularly when it can be achieved at no loss of fairness. In any event, they should give a civil hearing to policy suggestions.

Complete inflexibility from the retired may leave them with few sympathisers should the large deficits in the public pension scheme require real fiscal surgery in the future.

Redistribution in the Age of Austerity

Readers of this blog might be interested in this working paper we’ve just put up on the Levy working paper series. The abstract is below.

We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.

Garret FitzGerald Lecture and Autumn School

UCD College of Social Sciences and Law will host the Garret FitzGerald Lecture and Autumn School on Monday 19th October, in the UCD Sutherland School of Law. The daytime School (from midday) will focus on the significance of the social sciences. The evening Lecture will be delivered by Professor Cass R Sunstein,Harvard Law School, on the theme ‘Is Behavioural Science Compatible with Democracy?’. More details and bookings here.

Save the Date: September 30 Conference on Higher Education Funding in Maynooth

On Wednesday, September 30, we are holding a one-day conference on ‘Higher Education Funding: Drawing on the International Experience’ in Maynooth.

The context for this conference is the debate on how to fund higher education in Ireland. In 2014, the Minister for Education established an Expert Group on Future Funding for Higher Education, and the motivation for the conference is to inform the discussion about the choice of funding options available; we have a particular interest in the interaction between funding mechanisms and differential access to higher education along socioeconomic lines.

International speakers include Sara Goldrick-Rab of the University of Wisconsin-Madison, who has written extensively on the issue of higher education funding in the US; Claire Crawford of Warwick University and the IFS, who has written several detailed analyses of the UK system; and Bruce Chapman of the Australian National University, whose name is particularly associated with income-contingent student loans, both in terms of his academic research and his role as policy advisor to many governments.

Local speakers include Rory O’Donnell of NESC and Delma Byrne of Maynooth University.

The conference will be open to all. I’ll post further details here in the coming weeks.

Update: Full details are now available here.