Prospect emerges of cutting child poverty while saving public funds


AnalysisIn 2007, after a decade of extraordinary growth in the numbers at work Ireland had the second-highest rate of adults living in jobless households out of 31 European states.

That a huge section of the population did not benefit from the Celtic Tiger jobs boom had much to do with the abject failure of successive governments to link the taxation, welfare and training systems.

Perhaps the most egregious example yet of the State’s inability to frame coherently public policy in this area emerged yesterday. A report for the Department of Social Protection reveals that despite the fact that in 2011 welfare payments directed at children here were the highest of any of 28 countries, Irish child poverty rates were higher than the average across the rich world.

It takes particular incompetence to spend more money than anyone else on a problem and still achieve below average results.

Helps the needy

While there has been no shortage of reports on how to help the young over the years, all have gathered dust, as so often happens in Ireland. However, there are signs that some reform is finally afoot.

Since Joan Burton moved into the Department of Social Protection in the spring of 2011 there seems to be some newfound seriousness in that ministry about improving the way the State helps the needy.

Her Advisory Group on Tax and Social Welfare completed its first report – on child and family income support – almost a year ago. It has just come into the public domain.

Before considering its contents, some of the deep background is worth summarising.

Children’s allowance was first introduced in 1944 as a universal benefit. In the mid-1980s, at the time of the last great economic crisis, the then Fine Gael-Labour coalition decided to maintain the universality of the benefit, but to tax it. That administration did manage to change the payment’s name to child benefit (CB), but did not succeed in clawing some of it back in tax from wealthier recipients. That failure was “for administrative and technical reasons”, according to the new report (an excuse that has echoed down the decades).

Instead, and in order to better target available resources at those in most need, other child-related welfare payments were introduced in the miserable 1980s. By the early 1990s, these more targeted payments accounted for three-quarters of all social transfers aimed at children.

That breakdown changed radically from the turn of the century as the then government identified the political gain of giving everyone increased CB payments. By the time the economy crashed, that payment accounted for more than two-thirds of the child welfare budget.

That a universal payment accounts for so much of the child welfare budget is among the main reasons we do not have lower child poverty levels.

Poverty traps

There are plenty of other design flaws in the system. The different child benefit payments are not well joined up (the report notes that each payment maintains “disparate characteristics which obviates against overall coherence within the system”).

More seriously still, while cash payments are high, services such as childcare are next to non-existent compared to other countries. This creates difficult-to-escape poverty traps as it disincentivises the taking up of paid employment.

Burton’s advisory group long-listed six possible reform options that could address the weaknesses of the current arrangements. They shortlisted two: taxing CB and creating a two-tier payment based on income.

Even though they plumped for the latter in the end, the group finds that both shortlisted proposals would produce the win-win of cutting child poverty levels and simultaneously saving public money.

One curious aspect of the report was the unanimous support among the 15 members of the advisory group for the maintenance of a universal payment. There are certainly a number of good reasons for taking this position, but the objective case for moving entirely to targeted benefits was not as completely made as it could have been.

This may reflect a more general weakness of the report – its absence of an international perspective.

Of the 15 members of the group none is a foreign-national and of the many past reports used as the report’s evidence base there was only one international study. Perhaps the group might consider thinking a little more about best practice elsewhere in its future reports.