Targeting child benefit
CHILD BENEFIT is a universal tax-free payment made to all families with children: to rich and poor without regard to their financial means. It is also a payment that has increased sharply in a very short time. Between 2000 and 2009 child benefit rose far more rapidly than economic growth.
That has made it the focus of attention for the Government, which must cut spending in order to lower the deficit, and meet the terms of the bailout agreement with the troika – European Union, International Monetary Fund and European Central Bank. In the past three years child benefit payment has been cut by 15 per cent, and in 2012 will cost some €2bn. Further savings are planned, by phasing in a standardised rate of child benefit payment for all children. And more are likely to be announced in the December budget.
Clearly, given the need to raise €3.5 billion next year, with two thirds of this to be raised through spending cuts, hard choices are unavoidable as the Government struggles to achieve fiscal balance against a deteriorating economic background. Households are still heavily indebted, unemployment remains high, the numbers emigrating continue to rise, and the rate of economic growth has been revised downward.
For the Government, which seems intent on achieving major savings on the child benefit bill, the particular challenge lies in doing so without leaving the most vulnerable in society worse off as a result. On equity grounds, the universal payment of child benefit to all families tax free, and regardless of their financial means, has always been questionable. In the boom years what might well have been seen as affordable is now, given our altered economic circumstances, no longer sustainable. A benefit payment that is neither means-tested nor taxed has become harder to justify on equity grounds. There is, however, no shortage of proposals on how to cut the cost of child benefit, but few that offer clear and simple solutions without potentially adverse consequences.
Given the lack of adequate State provision or financial support for crèche facilities for working parents, child benefit is often used by them to pay for childcare. Means testing would require some examination of an applicant’s sources of income in order to establish eligibility for benefit. The administration cost might well exceed any savings made. Equally under a means-tested system, those families most in need of child benefit may fail to get it, because they failed to apply.
The IMF has suggested that if the universal component of the payment were reduced, the reduction could be offset by increases in qualified child allowances and family income supplement, which are means-tested. That is similar to the approach favoured by an expert group on child and family income support, in its report to the Minister for Social Protection.
Ultimately, the yardstick by which any change to child benefit will be judged is less by the savings made, but whether it leaves those most vulnerable in society, better or worse off.