Deadweight welfare loss

Public funding of health care, welfare payments, and lost taxation revenue for people with partial sight and blindness mean that governments must increase tax revenue to achieve a budget neutral position. Consequently tax rates must be higher than they would have otherwise been. As noted previously, taxation and welfare payments are not economic costs but a transfer of payments from one individual to another. However, increasing tax revenue is not frictionless as tax reduces the efficiency with which the economy’s resources are used. For example, an increase in income tax rates increases the relative price of work compared to leisure and therefore creates a disincentive to work.

Alternatively, an increase in taxes on goods and services results in a loss in sales. Consequently there is an associated reduction in consumer and producer surplus, which is the deadweight welfare loss (DWL), or excess burden, of tax. This represents lost efficiency.

The size of the DWL will depend on the method used to raise additional taxes and the proportion of health care costs funded by the government. The usual assumption in program evaluation, and applied in this study, is that additional taxes are raised through income tax rate changes.
DWL is estimated in the model using the following variables:

• the total health care system costs of VI and blindness (from Chapter 3);
• the proportion of health care system costs funded by the Irish government; and
• welfare payments to people with sight loss in the ROI;
• lost taxation revenue to the Irish government from productivity losses of people with VI and their carers;
• the marginal cost of public funds (MCPF), or efficiency loss per additional euro of tax raised, in the ROI.

The total health care system costs of VI and blindness in the ROI were estimated in Chapter 3. The public share of health care expenditure in the ROI was 80.7% in 2007 (OECD, 2009). This funding ratio was applied to estimated health care costs on VI and blindness under the assumption that it will remain constant in future years to estimate government funded health care costs.
Estimates of the government funded health care costs of VI and blindness are presented in Table 4.10.

Table 4.10: Government-funded health care costs on VI and blindness

Source: Deloitte Access Economics calculations using total health care costs from Section 3.5 and OECD (2009).

Lost taxation revenue from reduced employment among people with VI includes lost income tax and lost consumption tax. Therefore, total taxation losses were estimated by applying the current average income tax rate of 20% and value-added taxation (VAT) rate of 21% (Citizens Information Board, 2010) to productivity losses and informal care costs (Section 4.1 and Section 4.2). Lost taxation revenue from people with VI and blindness and their carers amounted to €67.6 million in 2010.

Estimates and calculations of lost taxation revenue are presented in Table 4.11. These calculations assume that the 2010 income taxation and VAT rates remain constant to 2015 and 2020.

Table 4.11: Calculated taxation losses – people with a seeing disability and their carers

Source: Deloitte Access Economics calculations using Citizens Information Board (2010), productivity losses from Section 4.1 and informal care costs from Section 4.2. (a) Calculated by applying the average income (20%) and standard VAT (21%) taxation rates to estimated productivity losses from Section 4.1.1 and Section 4.1.2. (b) Calculated by applying the average income (20%) and standard VAT (21%) taxation rates to estimated informal care costs from Section 4.2.

People with VI or blindness may be eligible for a number of government benefits and allowances in the ROI. Some of these payments, including eligibility criteria, are listed below (NCBI, 2010):

• Companion free travel pass: Must fulfil blind or VI registration criteria.
• Disabled persons’ parking card: Must fulfil blind or VI registration criteria.
• Blind person’s tax credits: Must fulfil blind or VI registration criteria and be working. Registered owners of guide dogs are also entitled to an annual tax credit.
• Disability Allowance: Must have an injury, disease or disability that has continued for at least one year substantially restricting undertaking work, be aged between 16 and 66 years, satisfy a means test and habitual residence condition.
• Blind Pension: Must be registered with the NCBI as being blind or vision impaired, be over 18 years and satisfy a means test.
• Blind Welfare Allowance: Must be blind or vision impaired, over 18 years and satisfy a means test. Those receiving the Blind Pension may qualify for the Blind Welfare Allowance.
• Household benefits package: Must be aged 70 years and over or be receiving a carer’s allowance, Blind Pension or old age contributory and non-contributory pension.
• Invalidity Pension: A weekly payment to people who cannot work because of a long-term illness or disability and are covered by social insurance.

Additionally, people caring for people with VI may qualify for the Carer’s Allowance or Carer’s Benefit. The Carer’s Allowance is for carers on low income aged 18 years or over providing full-time care and living with the person being cared for. The Carer’s Benefit is payable to those who temporarily leave their job to care for a person in need of full-time care.
Data were only available for the number of recipients of the Blind Pension and Blind Welfare Allowance. Therefore, this study only includes these two payments in the calculation of DWL from transfer payments. Carer-related payments were also excluded due to the absence of data for the numbers and income distributions of informal carers for people with VI and blindness in the ROI (Section 4.2 included only the number of recipients of informal care).

There were 1,467 recipients of the Blind Pension in 2009 (CSO, 2010j). People receiving the Blind Pension are registered with the NCBI as being blind or vision impaired, over 18 years, and satisfied a means test. The number of Blind Pension recipients has been declining since 1999 but was relatively constant between 2006 and 2009 (CSO, 2010j). Given the degree of uncertainty in this trend over the next ten years, the number of Blind Pension recipients is assumed to increase due only to population growth.

Table 4.12 presents the estimated numbers of Blind Pension recipients in 2010, 2015 and 2020.

Table 4.12: Estimated people receiving the Blind Pension

Source: Deloitte Access Economics calculations using CSO (2008; 2010j)
(a) Estimated by applying population growth rate of the 18+ years population from 2009 onwards to the 1,467 recipients of the Blind Pension in 2009 (CSO, 2010j).

Blind Welfare Allowance recipient numbers were only identified for the years 2002-2004, during which there was an increase from 2,030 recipients in 2002 to 2,548 recipients in 2004 (DOHC, 2005). This compares with 2,027 Blind Pension recipients in 2004 (CSO, 2010j). Thus, the number of Blind Welfare Allowance recipients is estimated to be 26% greater than the number of people receiving only the Blind Pension. This ratio (1.26) was assumed to remain constant over time and was applied to the estimated numbers of Blind Pension recipients in 2010, 2015 and 2020.

Table 4.13 reports the projected numbers of Blind Welfare Allowance recipients in the years 2010, 2015 and 2020. The number of recipients in 2010 is lower than the DOHC (2005) reported number of recipients in 2004 (1,884 vs. 2,548). However, in the absence of data for 2005-2009 it is unclear whether recipient numbers increased or decreased during this period. It is therefore possible that the numbers of Blind Welfare Allowance recipients, and hence the DWLs due to blindness, have been underestimated in this study.

Table 4.13: Estimated people receiving the Blind Welfare Allowance

Source: Deloitte Access Economics calculations using CSO (2005; 2008) and DOHC (2005). (a) Ratio of people receiving the Blind Welfare Allowance to people receiving the Blind Pension in 2004.

The maximum weekly rates in 2010 were €196 for the Blind Pension and €61 for the Blind Welfare Allowance (Citizens Information Board, 2010). In the absence of further information, this study conservatively assumes weekly payments to remain constant to the year 2020. Applying these weekly rates to estimated recipient numbers, total estimated expenditure on the Blind Pension was nearly €15.3 million, and total estimated expenditure on the Blind Welfare Allowance was nearly €6.0 million in 2010 (nearly €21.3 million in total).

Kleven and Kreiner (2003) estimated the standard MCPF for Ireland under a progressive tax reform as 1.57. This represents an efficiency loss of 57 cents for every euro raised by the government from taxation. Since the ROI has a progressive taxation system, this MCPF was applied to government funded health care costs, productivity losses, informal care costs, and the total cost of Blind Pensions and Blind Welfare Allowances. The MCPF aligns with the simple average of MCPFs for Ireland under proportional, regressive and progressive tax reforms of 1.58 as reported by Kleven and Kreiner (2003).

As presented in Table 4.14, DWL is valued at €104.4 million in 2010, increasing to €121.6 million by 2020.

Table 4.14: Total DWL by component (a)

Source: Deloitte Access Economics calculations using Kleven and Kreiner (2003), CSO (2008; 2010j), OECD (2009) and Citizens Information Board (2010). (a) Calculated by applying a MCPF of 1.57 from Kleven and Kreiner (2003) to each component. (b) Government funded health care costs estimated in Table 4.10. © Lost taxation from productivity losses and informal care costs estimated in Table 4.11. (d) Blind Pension and Blind Welfare Allowance recipients reported in Table 4.12 and Table 4.13.

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