Rethinking child benefit
Any plan to reform and lower the public cost of child benefit – some €2 billion annually – is bound to displease many more people than it pleases. The report by the advisory group on tax and social welfare is no exception. If the Government fully accepts its recommendations, with likely cost savings of 10 per cent or €200 million annually, then more families will lose financially than gain. The expert group favours a two-tier child benefit payment system, where only those with family incomes below €25,000 would secure the maximum benefit payment. Those on higher incomes, would receive less, a cut of some €20 per child in monthly benefit payments.
Quite clearly the high cost of child benefit is no longer sustainable, given the size of our public debt and budget deficit, and given that debt and deficit reduction are not just requirements of the bailout programme, but also matters of economic necessity. Child benefit is a universal payment that is paid tax-free to all families with children, and without regard to their financial means. For most of the last decade, the rates of child benefit payment outpaced the rate of growth in the domestic economy: between 2000 and 2008 child benefit rates tripled. The universal nature of this payment raises a question of social equity: why should wealthy families who are in least need of such financial support continue to receive it? Taxation of child benefit has been suggested as one way to reduce the inequity, and to achieve savings. But when asked about taxing families in receipt of child benefit who are earning over €100,000, Ita Mangan, chairwoman of the advisory group, said the tax yield would be very low.
Critics of the report have taken issue with aspects of the two-tier system of child benefit payments now proposed. The Society of St Vincent de Paul, has claimed the threshold set to qualify for the maximum payment – €25,000 – is too low. For a family of two adults and two children, the €25,000 figure places them close to the poverty line. And middle-income families of modest means will also feel under greater financial pressure from a two-tier system where benefits fall as incomes rise. Minister for Social Protection Joan Burton has acknowledged the difficulties facing many in that squeezed middle income category: those who bought property at the height of the boom, and who now have “high mortgage repayments and high outgoings”. The reforms proposed will, if fully implemented, secure relatively modest savings. And the Government will face a tough challenge in winning the public’s acceptance and support for the changes. Given that a majority of those in receipt of child benefit will lose some of what they have previously enjoyed, while a minority will retain the benefit support that they already have, that will prove difficult.