When the Nobel Prize winning US economist Milton Friedman – who was much admired by Ronald Regan and Margaret Thatcher – remarked that “nothing is so permanent as a temporary Government programme” he most certainly didn’t have the Irish higher education grant system in mind.
But the kerfuffle over the suggestion that the €1,000 reduction in the “student contribution” towards third-level fees may be axed looks set to prove him right once again.
Introduced in Budget 2022 as part of a cost-of-living package, the temporary measure reappeared in the following two budgets and the expectation was that it would also feature in next year’s budget, the details of which will which be announced in October.
That would certainly seem to be the view of Simon Harris, leader of junior Coalition partner Fine Gael, who has thrown shade on the suggestion at the weekend by the Minster for Higher Education, Fianna Fáil’s James Lawless, that the measure would not feature next year. Harris – who introduced the cut when he was doing Lawless’s job – remarked somewhat elliptically that we will “see where the Budget brings us”.
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The issue will no doubt provide much political sport over the dog days of summer but what is not up for debate is that the arguments for its retention are electoral rather than economic.
The main beneficiaries of the cut are middle-class, higher-income voters. The €1,000 reduction has little impact on the ability of students from lower-income families to access third level education.
There are roughly 250,000 third level students and around a quarter of them get a grant. There are various levels of grant ranging from the full package (covering the costs of accommodation, living and student contribution) to grants covering part of the student contribution. The income thresholds for the various levels go from €27,400 for the full package to €136,000 for the minimum grant. Roughly two-thirds of recipients are on the full grant.
The Department of Education says students from families earning less than €55,924 will not have to pay the student contribution this year.
Defining what constitutes the middle class in contemporary Ireland is not straightforward. In many ways, it’s more a state of mind than an income bracket. However, the think tank Social Justice Ireland (SJI) reckons that a middle-income earner is someone on between €40,000 and €100,000 a year.
If you accept the SJI categorisation, then all students from lower-income families should get their student contribution covered. Likewise, a fair chunk of the bottom half of the middle-income bracket get all or some of it covered.
The real winners from the across-the-board reduction in student contribution are those at the top end of the middle-income bracket and the lower end of the high-income bracket. They are the Irish middle class. And they were undoubtedly feeling the pressure as inflation and energy prices soared in 2022. The cut in the student contribution would have made a significant difference to many families back then, but inflation has abated, wages have gone up and people have adapted.
The reduction costs the exchequer almost €100 million a year, which is roughly a quarter of what the Government spends on third level student supports such as grants. If the policy of this Government is – as stated in its programme for Government – “fair and equal access to quality further and higher education regardless of socioeconomic status, ability or geographical location” a hallmark of its time in office, then it is a no -brainer that the €100 million should now be used to increase the size of grants and raise the income thresholds.
It is not that simple, of course. More than half of Irish income tax is paid by the top 10 per cent of earners, who take home more than €100,000 a year, says the parliamentary budget office, which crunches the numbers for Oireachtas members.
It is an unbalanced and unstable system, as we saw in the 2008 crash when income tax revenues evaporated, but it keeps the economy competitive.
The impact of the lopsided levying of income tax is felt most by those who earn just over €100,000. They may earn a lot, but they also pay a lot of tax and can struggle to fulfil the conventional aspirations of middle-class life such as higher education for their offspring.
There are a couple of carrots thrown our way, including child benefit – which is not means tested – and a heavily subsidised private education system which sees the State pay teachers’ salaries at elite private schools. There are also generous allowances to ensure that we can pass on our wealth – mostly in the form of the family home – to our children. All of which are political no-go areas.
The real problem for the Government is that the temporary reduction in college fees seems to have become part of this unwritten social contract with the middle class. Changing it will come at a political price.
