The Welfare State vs Immigration: What Ireland's Numbers Actually Say

0:00David McWilliams: Today's podcast, all about some ancient memories from nearly 40, beyond 40 years ago, which is a bit sad really at this stage. But also, we are going to talk about the welfare state and immigration. Is immigration consistent with an open Western welfare state? If yes, grand. If no, what changes? Interesting stuff, urgent stuff. And I think this is going to be the policy debate of the next 10 years. It's all coming up in a couple of minutes.

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1:47David McWilliams: How you doing there? Time for the podcast. I hope all is good in your world. John and I have had a wonderful week and we're looking forward to an even more wonderful week in the week ahead. Podcast today is going to be on the question of welfare states, not just welfare states, but the question is, have you ever thought about whether or not are the consistency of having significant migration into welfare states that already existed and existed before the immigrants came. And the reason I asked this question is there was a very interesting piece last week in the Financial Times by a friend of the show, John Byrne Murdoch, who made the point that when you look at welfare systems and welfare states, different ones in Europe and how they operate, and you look at migration and in and out of Europe in particular, what you see is varying different outcomes and different consequences based on the different welfare states.

2:49David McWilliams: And the idea is that not all welfare states are the same and not all migrants are the same. And given that even in the last day, there have been surveys in the Irish Times here, but again, all over Europe saying that immigration is one of the big issues of people. It has been in the top three for the last at least 12 months across every European country. we know with the rise of the AFD, with Le Pen, with reform, with Maloney, and of course with Donald J. Trump's MAGA movement, all of these movements have at the source, or at least at one of the sources, a skepticism towards a downright dislike of and opposition to what they see as mass migration.

3:39Again, you can avoid this issue if you want, but I think putting your head in the sand is a stupid idea. If you put your head in the sand on this, what you will find is you are overwhelmed by the extremes on either side. And we don't want that because you can go extreme right on this, you can go extreme left on this, but the vast majority of people, the sort of silent majority, in effect, tend to be in this centre, really having pretty liberal views on most things, accepting tolerant views, understanding the economics of it. But they tend to get drowned out by the rhetoric on either side.

4:18David McWilliams: And the good thing of this podcast is we're going to put some numbers, John. Data on it. Numbers. I love a bit of numbers. We're going to take away and take some of the heat out of the discussion and try and shed a bit of light with data. How are you, Head? Good to see you. I'm good. I'm good. I'm good. I'm good. I love some numbers, especially when you get all Mattsy. It's just so, it's so you, Mac. It's great. I know, I know, I know, I know. I was thinking about a scenario, Youth John, last night, as I stood on Grafton Street. I stood on Grafton Street, and you two gave an amazing 12-song set gig from the balcony of beauties.

5:01extraordinary scenes I didn't know about that I would have been in there you should have given us a shout

5:05David McWilliams: Mike you should have given you a shout I should have said come here Johnny boy you should have been there no it was it was an impromptu gig a secret gig given to about 15 ,000 people but it was and was this all the new album it's all the new album it's to and again the reason I'm thinking of our youth it's to mark the 50th anniversary of the founding of U2 and they have a new record out a new album out and I got the nod to go into McGonagall's yesterday afternoon to see and listen to some of the new material, which is amazing given they've been 50 years in the business. It seems fresh, it seems new.

5:45David McWilliams: I think it's called Carnival de Luz. It's been recorded in Mexico and then there was a gig afterwards. So it was a kind of a sort of a U2 day in effect from about five o 'clock. Fantastic. Like all the little bits that I have heard from the album, Only snippets. It does sound great. Back to form. It is back to form. And as a result of that, I've been listening a little bit to Boy this morning. And you forget how good an album this was. But it brings me back, John, because they've been 50 years in the business. And it brings me back to the first time I saw them, which was on, and I got the date.

6:20I looked, it was the 27th of July, 1980. And it was a Sunday afternoon. And it was in Leakslip. And they were playing Down on the Bill.

6:33David McWilliams: The Bill was headlined by the police, who were a huge band. That's right. The police were the biggest band in the world. Yeah, yeah, yeah, yeah. They were good. They weren't brilliant. They were lacking a little. Well, they were the headline gig. And Down the Bill was a guy called Paul. What was his name? Oh, Paul Young. Paul Young. Yeah. Kind of a soul singer, kind of white soul singer. Yeah, yeah. The guy with the fretless bass. That was the guy. Then there was an amazing band. called John Otway and Wild Willie Barrett. Do you remember this? Okay. Yes, I do. Two loons from England. Two mad English lads.

7:08David McWilliams: Yeah. And then was this band from Dublin called U2. Now, people have been talking about them because they've been playing the Dandelion Market, but we've never got to see them. So I can't believe you didn't go with me because at that stage, you and I were kind of tied at the hip and you were a much bigger muso than I was. But I went with my cousin Cahal. I was probably up the mountains or somewhere. You were probably up the mountains. shout out to my cousin Cajal who is listening to the podcast from Cyprus he is from Balivorny in West Cork where my mother describes the people down there as incomprehensible in two languages and Cajal arrived up with his Sid Vicious t-shirt and he said to me we'd planned it on the sly because my mother would have said you won't be going to do that rock and roll stuff it's very noisy I know it's brilliant we pretended we were going to a soccer blitz in Sally Noggin on a Sunday morning and we went to Leakslip.

8:00And the tickets, I remember they were six pounds each. And I thought that was a phenomenal amount of money. Jesus, them were the days.

8:08David McWilliams: And because there was nothing else in Ireland ever, the whole world turned up. And there was fellas getting over fences and jumping over walls. I would say about, I would say about 60 % of people paid for anything. It was an amazing day. Anyway, my point is, YouTube came on and it must be impossible. You come on at like four in the afternoon or five, right? You're way down the bill. And they absolutely schooled the rest of them. And this was even before they had released Boy. So they hadn't even got an album out. That's when they had the EP out, wasn't it? One, two, three or whatever it was called.

8:47Yes. And we all were aware of them, but I'd never seen them live.

8:52David McWilliams: And they schooled the entire gig. And it's funny, subsequently, I've been told that Edge puked before he went on stage. He was so nervous. Because they were only about 18 or 19, you know. Actually, you can't blame him for that. But actually, by the way, it was this day last year that we had Edge on the pod. Was it? We should remind him. I popped up on my phone today. That's brilliant. But I do remember the gig because you could see then that this band were better live than anybody else. even then they they were just they had an energy that alive energy but i remember distinctly leaving the gig and it was on a sunday and you and i were going to ballingarey irish college on the monday the next day right for the august yeah carl and i were leaving the most forlorn looking lad at a gig is the badge seller at the end of the gig because you remember that was one of the great merch things you could buy.

9:52David McWilliams: Oh, yeah. People now buy all sorts of interesting merch. But the button badges. But for us in those days, it was just one badge, right? And the badge screamed the type of person you were. So if you had a jam badge, you were a jam fan, probably a mod. If you had a sex pistol badge, you were a punk. Everyone seemed to have to have a Clash badge. I had the Who. And the Who badge. And of course, I came out and your man was selling discounted YouTube badges because he hadn't flogged them all. So I got one for about 20 pence. and I said that's it that's going to be my thing it's going to be cool it's going to be Irish it's going to be slightly under the radar seeing you're going to be given a lot of credence and cred you know it was like I saw them so next day we got on the train to Ballangary Irish College and I remember and this is why I became a U2 fan after having seen them on the third night John on the third night at the Cayley in Ballangary outside the Cayley up against the wall there was a really really pretty girl I remember she was called Siobhan from either Flanakilty or Bandon somewhere in West Cork and she was kind of Suzie and the Banshee's Eyelire and I was 13 and she was chatting away to me and she looked at me and she said that's a really cool badge and I said yeah it isn't it throwing shapes she said can I have it and I said no you can't have it and she said to me I'll snog you for the badge so ever since then I gave you couldn't get a snog got a wise, is it?

11:21David McWilliams: But I mean, you're a 13-year-old boy and somebody says, I'll snog you for your YouTube badge. And that was the height of it. And ever since then, I've been a YouTube fan because deep in my heart was that transaction that opened up an entire teenage vista to me. An entire teenage vista was opened up. So that's why that was one of the many reasons why I like that band, which is that without you two... Yeah, thank you, Vano. Thank you for the snog. So Siobhan from either Sonic Hilty or Bandon if you are listening you may well remember that moment too Absolutely And now those fellas are together 50 years and that was 46 years ago Yeah That's incredible Which is kind of shocking Anyway Okay So how do we move from there?

12:08David McWilliams: That was a very very different Ireland It was white It was homogenous It was religious It was isolated it was poor, it was innocent. It was a difficult Ireland to live in for most of us. Completely. Yeah, for most of us. But it was also a country on the cusp of something, on the cusp of modernity, on the cusp of, we didn't know at the time, but, you know, subsequent years were going to be very, very kind to Ireland. Although, as I always say, the Irish were the only race that managed to miss the 1980s economically. The rest of the world boomed. Yeah, and at that stage, that's when a couple of years later, we up and left and we emigrated to London.

12:53Yeah. As you're saying now, this is a very different Ireland where we have immigration, which has changed the complexion of Ireland.

13:01David McWilliams: Exactly. And we have a welfare state that we didn't have at the time. So we had the bits of it, but we didn't have a really properly functioning welfare state. So today's podcast, John, is going to be about dealing with these new challenges. So we want to talk about the New Ireland. And it's not just Ireland. The whole world is facing these demographic issues, right? We talked about this about three or four weeks ago. We touched on immigration as well in the context of housing. And now we're going to touch on immigration again in the context of the welfare state. And the reason we're doing it is because this is a massive issue.

13:34And just so you are warned, this is not going to be an anti-immigration podcast.

13:40David McWilliams: On the contrary, this morning, John, I had two Brazilian lads at nine o 'clock in the morning on a Saturday morning from Dino Rod coming in here, doing an unpleasant job. We chatted about football, the whole thing. So this is, you know, we need immigrants in this country. The question is, what are the issues that immigration is throwing up, right? That's the key thing. And one of the issues is the idea of the welfare state. I mean, the idea is, talking about immigration can be so tricky because people have these emotional and incredibly entrenched positions. You know, there's people out there who think that any number of immigrants is way too much.

14:18David McWilliams: And there's also people out there who believe any number of immigrants isn't half enough. Yeah. And it can be all accommodated. And a lot of people kind of had two and two together and come up with 22 and all that kind of stuff. Exactly. But I think most people are somewhere in the middle, right? Opinion polls, people have immigration, you know, usually top three in the perceptions. But again, if you ask people, they're like still more Irish people than not are broadly supportive, etc. But one of the major issues, John, is the idea, and the Danes put their finger on this a couple of years ago, and they were saying, is the welfare state and reasonably large-scale immigration into Western welfare states, are these issues compatible?

15:04For example, maybe the success of Irish immigrants in the United States

15:08David McWilliams: was because there was no welfare state in the 20th century, the beginning of the 20th century. So if an immigrant worked hard and pulled themselves up, they became the subject of admiration rather than the subject of suspicion. So I think what's interesting now is because there's so much rhetoric, once you get a bit of data and you begin a little bit more granular research on this issue, it gives us a really good sense of what's going on, right? And last week, last week, John Byrne Murdoch in the FT wrote a very interesting piece about who gains and who loses. What is the fiscal cost? Now, this is just the cost to the exchequer in terms of budget.

15:56who gains who loses who pays who doesn't pay and because we're seeing this new research i think it's important to have a look at it because up until recently most economic research into immigration kind of assumes that all immigrants are the same and all welfare states are the same yeah but they're not and this makes a massive massive difference because different welfare states operate differently. And as a result of that, they have completely different outcomes. According to the FD, their idea is that the exchequer position depends as much on the tax and welfare system in a country as who exactly the immigrants are.

16:39Can I just ask you about what is the difference? Is that the structure of the welfare state, the amount of money that they actually pay out in terms of unemployment benefit and housing benefit and all the rest. Like, explain the difference a little bit. Yeah, so this is the crucial fact, right? So a country like Ireland's welfare state is intellectually based on the UK's welfare state, I would say, as opposed to France and Germany. This is the first thing. Except Ireland is a much richer country now and has a much more generous welfare state. But to give you a sense, so our country has what we call a very, very, very progressive tax system.

17:21This means that low-wage workers pay very little or zero income tax in Ireland. And then workers get taxed increasingly heavily as they earn more. And this will obviously affect the overall lifetime contribution an immigrant makes or any person here, particularly if they're low wage. So if you're working on low wages in Ireland, you pay very, very little tax. Whereas, interestingly, if you're working on low wages in Germany, France, or Spain, you pay considerably more tax. Okay, I didn't know that. But they pay back in different ways, right? And in addition, if a country provides what's called a flat state pension to everyone, again, like Ireland and the UK, except our pensions are higher, irrespective of how much tax a person has paid during their working life, then the migrants, when they retire, will take out more from the system than they have paid in.

18:17And this is all based on a research paper from Stanford University, which was published last week. And it builds like a 50-year fiscal model for the UK, Germany, France, and Spain. Can I just ask you then that, I mean, there needs to be some sort of a flat state pension because you need a certain amount to live, below which you're going to be in poverty. You're absolutely right. So what the French and Germans do is there's a flat pension, but your pension increases given the amount of money that you have put into the tax system over the years. So if you have put in much more money into the tax system because you earned more, then your pension is considerably more from the base.

19:06Ireland operates a completely different public pension system, where there is a flat pension system in the country.

19:12David McWilliams: And I'll go on to the Irish figures in a sec, but I just want to make sure the listener gets the idea. So the idea is not all welfare systems are the same, or immigrants are the same. So you have low-skilled immigrants, and you have high-skilled immigrants. You have low-income immigrants, you have high-income immigrants. And, of course, the model distinguishes between two other types of immigrants. And this, I suppose, is where it becomes culturally quite tricky, but I think you need to at least articulate this. So it says there's two types of immigrants in this model, right? One is the average, and the average is a foreign-born migrant family where both the mother and father go out to work.

19:49So you're thinking maybe a couple who arrive in their 30s, they're going to set up shop here, both of them go out to work. And in this case, they're going to be high and low-skilled. And the average can be high and low-skilled workers. Second model is low-skilled, low-wage migrants that come from a culture where women don't do paid work. Now, this is really important. They call it female seclusion societies. And this typically refers to migrants from parts of Central and South Asia, from the Middle East, from North Africa, who have very low levels of female employment even after they arrive in the new country.

20:25Now, of course, the reason this is important is because those types of families cost the Irish state or the host state much more because the women don't go out to work. So they're not paying taxes. They're not contributing to the society in terms of economics. And as a result of that, those types of immigrants are going to cost you more over time. But they might save on certain things like childcare and etc.

20:52David McWilliams: But childcare is privately funded here. True, true. So it's not a state. It should be publicly funded and much more. But they might save. But the idea is they're not going out to work, so they're not paying taxes, right? And this is where the Financial Times argument becomes really quite interesting. Because they say if you take these two types of immigrants, the typical immigrant and those coming from non, what they call female seclusion societies, These are two very different types of contributors to society. So what the FT says, the average immigrant couple arriving in the UK, let's say at the age of 30, needs the primary earner to have a salary in the 55th percentile of overall earnings distribution.

21:43I'll explain that in a second. Yeah. Compared to 45th in France and 28th in Germany. So that's the difference, right? Right. And the reason is the British have this low tax at the lower end system and an open ended pension system at the far side. The Germans and the French have a much flatter tax system in terms of income. And they have a pension system, which is based on how much money you've put into it. And as a result of that, the new average immigrant couple is less of a burden on the French and German state. So the FTE have concluded that for immigration to be financially beneficial to the state, that's all we're talking about.

22:29We're not talking about culture and whatever, right? The UK, they say, needs to attract migrants that have much higher pay and much higher rates of employment than the average British person.

22:40David McWilliams: Yeah, that stands to reason. Because low-wage families, whether they're British or immigrant, exert a much greater, what they call, net fiscal cost to Britain, right? So I think that's new information, and I think it's actually quite interesting. Just go back and explain the percentile figures you were talking about there. So the 55th percentile means that you have to earn more than 55 % of the population below you. Okay. So basically, it's the difference between averages, right? So the percentiles are your position relative to the people above you and below you. So if you're in the 55th percentile, it means that 45 % of the people above you are earning more.

23:28And 55 % of the people below you are earning less. So that's the sort of area you have to be in. And this, of course, in the UK, what they're saying is that migrants who arrive in the UK, because of the nature of the UK welfare state, have to earn more, A, than the average, and have to be in the 55th percentile, meaning they are getting paid significantly more than the average dude. That must be a pretty decent wage, yeah.

24:03David McWilliams: So, well, I'm going to give you the wages for Ireland, right? Okay. Because I thought, okay, well, this is interesting. Let's try and do the numbers for Ireland. Now, I didn't have time to do all the numbers because I was just taking, I just had a couple of days to work on it, right? But... That's not good enough, mate. The Irish welfare system is very similar to the UK, except for the fact that people on half the average salary on low wages pay no tax at all in Ireland. No income tax. And the welfare system is far more generous, as well as being far more open-ended, even in the UK. So this means that obviously low-wage workers pay less tax here, but probably get more benefits throughout their life.

24:50And the back-of-the-envelope calculations, and again, I'm saying to listeners,

24:53David McWilliams: this is just back-of-the-envelope stuff, we'll probably do a little bit more work on it. But it shows that a couple who arrive here, let's say at the age of 30 and go to work, the main breadwinner in that family has to be in the 65th percentile. Now that means in terms of cash, John, that one individual needs to be earning at least 62 ,000 euros a year in order to pay their way over their lifetime. So a highly skilled worker then. So yeah, so this is what we're pushing towards because this is the idea of who is a net contributor and who's a net taker, right? Yeah. So that's when the two, the couple go out to work and try to get on with their own lives and make a life here in Ireland.

25:37For immigrants from female seclusion societies, where the culture means women don't go to work, the primary earner in this scenario, and this is really interesting, must be in the 85th percentile, meaning that that man, because it's always a man, because the women are in the home, has to earn in Ireland 95 ,000 euros a year for that couple to pay their way over the course of their lives. Wow. Now, that is a huge, huge issue because it means that unless you are a huge earner and unless you're in the 85th percentile, so it means that only 15 % of people earn more than you in the whole country.

26:21David McWilliams: And it means 85 % of the people earn less than you. And this would include the Dennis O 'Brien's and the like. Exactly, exactly, right? So I'll tell you, so we stand back and why is this, right? And it is because the Irish tax and welfare system, I believe, is coming from the right place. Yeah. It's designed to ease the burden on single low-wage families so that that family, whether they're migrants or native Irish, with one earner making half the average salary, doesn't pay any tax every year. So half the average salary is€27 ,000. So if you have a poor family where the main earner earns 27 ,000 euros, that family will receive 11 ,151 euros every year from the state, which is in effect support from the rest of society.

27:18That's what they get. Now, as you start to earn more in Ireland, the support from the rest of society falls away. So the average earner in Ireland, which is on a salary of 52 ,000, per year, when you take into account tax and welfare, that person pays into the state about 8 ,294 euros per year. Right. Okay. So if you're in a low salary, you get 11 ,000 into your pocket on top of your salary and you don't pay tax on your salary. If you're an average worker, you're actually getting taxed about 8 ,000 a year. So that's taken out of your salary. If you earn twice the average salary, which is$104 ,000 per year, you will pay into the state every year in taxation$40 ,362.

28:10So this is the way the Irish system tries to work very hard to reduce inequality. The left would call highly progressive.

28:20David McWilliams: The right would call it extractive, right? because basically what is is that if you're very poor, your position is made dramatically better relative to the people, the average or the above average by the combination of tax and welfare. And of course, that has significant ramifications for the type of migrant who comes here. Okay, so Mac, in one way, because we're almost at full employment, that we need migrants to come in and do all sorts of jobs, high-level jobs, medium and low-level jobs. And then the other point is that, you know, I'm all for equality and not having that huge disparity between rich and poor like you have in America, etc., etc.

29:11So that said, what's the conclusion here? Do we need to change our tax and welfare system in order to be fair on everybody, high earners and low earners. But before we answer that, let's do a bit of this.

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31:58So back in the room, so what we were making the point was that immigration, big, big story. Lots of people have very extreme views. Most people are in the middle. And what makes the immigration issue more and more difficult is there's lots and lots of shouting and roaring and not that much data. And what we're seeing now is increasingly more data-driven ideas around immigration. And one of the key findings in a recent paper was it makes a massive difference what type of welfare state you are, number one, and what type of immigrant comes in, number two. In the case of Ireland, Ireland has a highly progressive tax system.

32:40And that means that people on half the average wage and people on the average wage and people on twice the average wage, just take those three types of cohorts together, have very, very different experiences with the tax and welfare system. So for example, if you are on half the average wage, you're going to get a net contribution from the state into your family about 11 grand every year. If you're on the average wage, the state takes eight grand away from you.

33:12David McWilliams: And if you're on twice the average wage, the state takes 40 grand away from you. So that is the system we have in Ireland. In addition, because we pay a flat pension, which is unrelated to the amount of tax you've ever paid, somebody, let's say, on the minimum wage for 40 years, paying no tax, gets the same 300 euros a week as somebody who's earned 150 grand over 40 years and contributed enormous amounts of tax, right? So that's the system in Ireland. That's the system we've designed. It comes from 20 or 30 years of managing the economy. That's what it is. It's very different to the French system, very different to the German system.

33:51Now, what does it tell us about immigration, John? This is the key thing. On this narrow fiscal, are they a cost or benefit to the society? It means that unless, and this is the key thing, unless we change our tax and welfare system, we in Ireland need highly skilled immigrants who are going to come in on high wages. Otherwise, the state is going to pay enormously for immigrants to come in on low wages.

34:24David McWilliams: Now that has a question. The question you say is like, well, what about those people? And it's always said, who do the jobs the Irish people don't want to do, right? And then you've got to say, well, should it be that the tax and welfare system changes to accommodate low-waged skilled immigrants? Or should it be that in fact, In fact, maybe there's an equilibrium where the wages in those jobs should rise in order to attract in more people into those jobs. So don't always subjugate those jobs to be always and everywhere low wage. Because if there's a demand for those people, the price should go up, the wage should go up in those jobs.

35:07David McWilliams: that's an alternative to just let's say attracting in more and more people on low wages because you know if you have a country where the wage in ireland is let's say a hundred and the rest of the world the wage is let's say 20 you're always going to have an infinite supply of people who want to come yeah so that's one thing or the other thing is if you want to get your welfare state right, that the idea of the welfare state and significant immigration of low-wage people and low-skilled people makes no sense. And this, of course, is what the Danes have arrived at. They've decided this. They've decided that the issue of immigration is actually about the mix between the type of immigrant and the welfare state.

35:56You can have one or the other, but you can't have both indefinitely, which is why Denmark has changed its immigration policy. I think the Swedes have done the same thing, etc. So is it a matter of time before we do that then? And is that what we should be looking at? Yeah, I think that we started with, you know, 40 odd years ago in a field in Leakslip when Ireland was a homogenous immigrant country. The rest of Europe has been dealing with benefiting in most cases, but also suffering in some areas, right? The dilemma of immigration for a long time. We haven't. It's really taken off here in the last, let's say, 10 years.

36:37So what I think is that those debates the Europeans are having will come here and will crystallize here and will become the actual basis of public policy here. And I think it's worth saying, we leave it here, that the big debate in Ireland, economic, fiscal, financial, demographic, political debate, possibly in the next five years, will be this idea. The welfare state, is it consistent with mass immigration? If it isn't, which gives? Does immigration give or does the welfare state give? And that, I think, is the big policy debate of our times. And we will leave it there and we'll Talk to you Thursday.

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