THE INTERNATIONAL Monetary Fund (IMF) is less concerned about how the Government meets the financial targets agreed in the bailout programme.
It is more concerned that the Government achieves those goals: the end matters more than the means. In that respect the IMF recommendations, that child benefit be means-tested and the cost of medical cards reduced, were made as suggestions. No new conditions were introduced as part of the EU-IMF programme. Minister for Finance Michael Noonan has accepted that. Likewise, Tánaiste Eamon Gilmore has described the IMF proposals as long-term recommendations that are unrelated to current budget choices and decisions.
From September, the Government will start to consider its range of tax and spending options in advance of the 2013 budget in December. The fiscal challenge facing the Coalition remains a formidable one – how best to lower the budget deficit, given that since 2008 so many of the easier fiscal adjustment steps have already been taken.
The IMF, keenly aware of the difficult economic background, has sought to identify areas where substantial savings could be made in major spending programmes. After five years of consolidation, as the IMF has acknowledged, “few low-hanging fruit remain” to be plucked on the expenditure side. One large area of spending that has remained largely untouched is child benefit. It now costs over €2 billion annually, or more than three times what it cost a decade earlier.
Child benefit payment, which is tax-exempt, is a universal benefit payment. It is not means-tested, and is available to all families with children - regardless of their financial circumstances. One argument made against means testing child benefit is that the cost of administering such a scheme may well exceed the savings made. Means testing of applicants for welfare payments is labour intensive. It involves close personal scrutiny of sources of income - including bank accounts, savings and investments – to establish eligibility for benefit. But it can also mean that those entitled to such benefits – and perhaps in greatest need of them – may not get them because, quite simply, they fail to apply. An obvious financial inequity exists where wealthy households receive the payment. But universal benefit may well be necessary to ensure that all low-income families in need do get child benefit.
Last year, the Government made some modest savings by standardising the rates of payments of child benefit for all children, over a two-year period. But much more can be done, both to save money and to establish greater equity, without adversely affecting the entitlement of low-income families to child benefit. One way would be to retain the principle of universal payment of child benefit, while making it subject to tax. As those on low incomes are not required to make a tax return, they would continue to receive the payment while those on high incomes would be subject to tax on the child benefit received.