This year's Budget may leave Finance Minister Mr McCreevy and the Government far less room to manoeuvre than they might have wished for but it is likely to feature some giveaway elements.
The Minister has already indicated clearly that, despite stricter limits on most spending areas, health and social welfare will be targeted for increases. And the main beneficiary of any increase in social welfare is likely to be child benefit.
Child-benefit payments have risen rapidly in recent years, particularly last year. Payment rates are now £67.50 monthly for first and second children and £86 for third and subsequent children. But the Government has promised to do more. It has pledged that benefit rates will reach £117.50 for first and second children, and £146 for third and subsequent children, over a two-year period.
One reason for the scale of this increase is that the Government has opted out of the childcare debate. Stung by the ferocity of the opposition to individualisation, Mr McCreevy will not allow further allegations of bias towards working parents stand between Fianna Fβil and the next election.
The safest route to appease both at-home and working parents is an increase in child benefit. This is, of course, an expensive route. There have been calls in some quarters for the payments to be taxed. Many see this as a fairer method because it would give the greatest benefit to those outside the tax net and the least to those on the higher rate of tax. There is also some debate about paying the benefit universally.
Economists Zhiqi Chen and Frances Woolley of Canada's Carleton University have done extensive research on the area and have produced some interesting results. The basic finding is that child-benefit payments can make a genuine difference to family expenditure patterns.
Writing in the latest issue of the Economic Journal, they ask whether it matters who receives child benefit and if there is any justification for paying the benefit to middle-class families?
They also examine whether dual-income families spend their money differently from families with a single earner, and ask when can we expect spouses to share their incomes or one partner to transfer part of his income to the other partner to spend.
They predict that the targeting of benefits to the mother, who is usually the lower earner, makes most difference when she is partly independent. That is when she is earning enough not to be reliant on her partner for transfers for personal spending, but not so much that she is a substantial contributor to household goods, like paying the mortgage or buying the family's groceries.
Interestingly, the effect is greater than for non-earning spouses. The authors say this is because a spouse with no income of her own relies totally on her partner. Thus if he gets a €100 tax cut he can give it to her or use it for something else. If she gets a €100 child-benefit cheque, he can let her keep it or he can reduce the financial support he was giving her before. In either case it makes no difference who receives the €100.
The same is broadly true of both spouses who are contributing to a household good, like paying the mortgage, and it again makes no difference who receives the €100.
If it goes to the higher earner in a tax cut he can afford to pay more for the family groceries and the lower earner will have to contribute a little less.
If it goes to the lower earner in child benefit she can afford to pay more for the groceries and the higher earner will have a bit more pocket money. But when one spouse is partially independent it does make a difference. The child-benefit payment makes a real difference to her ability to spend the money on the things she believes are important and they say that is usually things for the children.
The authors also point out that families are different and some families do not share. When that happens there is a risk of secondary poverty - living in poverty within a non-poor household. In these cases, making the payment to the woman makes sense.
The authors also found that dual-income families spend money differently from single-income families. Even after taking into account spending on items such as restaurant meals and other substitutes for home-produced goods, the earner in a single-income family will spend relatively more of their money on household goods, from homes to furniture, which also improves the standard of living.
In a dual-income family, both spouses will have personal spending money and more money will be spent on goods for personal enjoyment from CDs to designer children's wear.
The research has some lessons for the Government looking at such large increases in child benefit at a time when Government spending is under pressure. The model suggests that taxing the benefit of high-earning, dual-income couples may be legitimate. Nevertheless, Mr McCreevy may balk at this as it may have repercussions on women returning to the workforce, an outcome that the Minister also wants to achieve. Quite how he will square this circle will be interesting.
