Irish Mail on Sunday February 24, 2013
Let’s maintain a universal benefit for all children irrespective of their parents’ income and provide additional support for the less well off. It sounds like a good idea. And that’s basically what’s recommended in Ita Mangan’s report published during the week. Her advisory group zoned in on two reform options, either tax Child Benefit or introduce this form of two-tier system. It opted for the latter and produced good and telling arguments against the taxation option.
Unfortunately the report doesn’t fully explain what it finds wrong with the two-tier system that we currently have. There are inadequacies, some of which are mentioned, but there is no discussion on how the system might be speedily tweaked to improve matters.
But a lot of that work has been done. The Mangan report proposals had previously been outlined in great detail in a much lengthier report prepared with the Department. Finalised in November 2010 it looked at both policy and value for money issues.
Although not officially published until this week, the Mangan report was submitted last March.
The Department’s report stressed, as Minister Joan Burton has been at pains to also stress that the change to a new two-tier system would take time and a lot of civil service resources. The internal report concluded that it would take “some considerable time to achieve” because of administrative and technical difficulties.
The Trioka has urged a better targeting of child support payments and the Government may be content with showing that it is moving in that direction while postponing the politically damaging changes.
We already have a two-tier system. The basic Child Benefit payment is paid in respect of all children while lower income families benefit from either social welfare top-ups or Family Income Supplements. When child benefit was reduced in 2010, there were compensatory increases in these second-tier social welfare payments. The Mangen Group, on the basis of some unspecified analysis that this risked raising child poverty rate and lessening the incentive to get a job.
It’s hard to see how any additional child benefit can increase the risk of child poverty and while there’s no doubt that any increase in social welfare payments reduces the incentive to work, it’s hardly a big issue at present, given the current dearth of jobs.
But, maybe relying on these arguments, Minister Burton didn’t provide any compensatory extra social welfare payments this year when she cut Child Benefit.
The cuts were imposed in full on all recipients from those on the lowest social welfare payments to those on the highest incomes. The Minister had to save money and presumably the only way to finance further benefits at the bottom end would have been to impose an even greater cut in Child Benefit. With the present system she couldn’t target that cut simply at the higher paid.
This would be possible, it seems, with the proposed two-tier system which would replace both social welfare child payments and Family Income Supplement with a new income-related supplement to Child Benefit.
Great when it comes, but what are we going to do while we’re waiting.
Maybe if the Margan Group hadn’t been constrained by a requirement that any change it proposed would be, at least, cost neutral, it would have come up with other alternatives such as raising taxes on the rich in order to maintain the current level of child income supports.
There would still be a need to target resources better. There may be a case, in some areas, for providing services rather than direct payments or in providing vouchers for services rather than money. There’s certainly a case for reforming the Family Income Supplement System – the Department’s value for money report contains recommendations in this regard.
There is no need to specifically tax child benefit. Maybe we should accept the basic conclusion of the Mangan report that Child Benefit should be a universal payment and forget about the idea of breaking it in two with a top-up for the lower paid? We could alternatively claw Child Benefit back from the better off by taxing the wealthy. Ok, those without children would pay the same as those with children but why not? Children provide potential benefits for society as a whole.
If we rule out increases in tax rates because of supposed disincentive effects on enterprise and the work ethic, then we need to raise more tax by spreading the net wider.
There is a range of options including, the introduction of a third income tax rate, extending the 3% USC surcharge to high-earning employees, wealth taxes and the imposition of restrictions on the amount that self-employed individuals can exempt from income tax by forming themselves into companies.