Oireachtas Joint and Select Committees
Wednesday, 20 March 2013
Joint Oireachtas Committee on Education and Social Protection
Report on Child and Family Income Support: Discussion
I welcome to our meeting officials from the advisory group on tax and social welfare and the Department of Social Protection. I also welcome Ita Mangan, author of the recent report on child and family income support.
I draw the witnesses attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
The opening statements the witnesses have submitted to the committee will be published on the committee website after this meeting. Members are reminded of the same parliamentary practice that they should not comment on, criticise nor make changes against a person outside the Houses, etc.
I invite Ms Mangan to make her opening remarks and she may wish to introduce the other members of the delegation.
Ms Ita Mangan:
I thank the committee for this opportunity to address it on the matter of the report of the advisory group on tax and social welfare. The colleagues with me today are Dr. John Sweeney and Mr. John Bohan, both members of the advisory group. Also with me is Ms Teresa Leonard, assistant secretary in the Department of Social Protection, who has responsibility for the administration of the particular payments we are discussing today.
I will provide a brief description of the content of the report and we will then be happy to answer any questions. The report is concerned with a policy area that has been the subject of a number of reports over the years. Child income support covers the area of child benefit, the major child income support payment, but also the areas of qualified child increases, the payments paid with weekly social welfare payments to various families, and family income support. Some €2.8 billion will be spent in 2013 on these payments by the Department of Social Protection. This accounts for approximately 14% of total social welfare expenditure of approximately €20 billion. Of this almost €3 billion in child income support payments, child benefit accounts for two-thirds of the expenditure and it is paid to 609,000 families in respect of some 1.16 million children. It is a universal payment, while the other payments, the qualified child increase and the family income support payment, are related to families' income situation.
The advisory group recognises that family income supports have two main objectives. First, they assist all families with the costs of raising children and second, they play a role in reducing poverty in households with children. These objectives remain valid and are particularly significant during a time of recession and high unemployment. However, the effectiveness of these payments in addressing these objectives has been examined in various reports. The evidence suggests that while we spend significantly higher amounts on cash benefits on families than other OECD countries, other countries get better outcomes. The reasons for this are complex, but the main reason is that direct income support for children is not the only consideration when child poverty is an issue. The other major considerations are parental income and the supports available for parents to go out to work and the services available for children. Nevertheless, direct income support for children is a major factor, but it is not the only factor in addressing child poverty.
The advisory group was established as a result of one of the commitments in the programme for Government and was asked to examine a number of specific issues on a cost-reducing or cost neutral basis. It is important to emphasise this was the case, because if one was to examine child and family income supports without these constraints, one might recommend a different design of income supports. The group started its work programme by prioritising this area of family and child income supports.
The conclusions reached by the group were as follows. The primary conclusion reached by the group in its entirety, which is composed of outside experts and representatives of Departments, was that child benefit should remain as a universal benefit. I am well aware that is not necessarily the view held by all participants in this debate, but the group was very clear it wanted child benefit to remain as a universal payment for all children. At the same time, we recognised that the system could be changed so as to better target children in low income families. We looked at a number of options for changes to the child income support system and decided there were two main options. One was the taxation of child benefit and the other was the two-tier payment, which is the option we recommend. We recognised there were arguments in favour of taxing child benefit, but the main reason we did not consider this the better option was that it only deals with child benefit and not with the other payments made to children. Therefore, it would not bring about any significant reform of the child income support system.
There are other problems with the taxation of child benefits, not least the question of the legal issues surrounding cohabiting couples and married couples. I would like to emphasise, however, that it is possible to tax child benefit. Reports on this issue go back to the 1970s. In the past, there was emphasis on how difficult it would be to tax child benefit, for technical reasons. However, it seems to the advisory group from the information made available to it by the Revenue Commissioners that the technical problems of taxing child benefit no longer exist and this is now possible. The reasons we did not prefer that option were not because it could not be done, but for the other reasons I have outlined.
While recognising there is no one perfect solution, the group favoured the two-tier approach. This means there would be a universal first-tier payment in respect of all children, although at a lower level than that paid currently. Then there would be a second-tier or supplementary payment which would be paid to low-income families and which would replace the current qualified child increases and family income supplements.
We concluded that this second-tier system would have advantages in terms of incentives to work in particular. As the committee is aware, a person on jobseeker's allowance who gets a job will lose not just his or her weekly jobseeker's allowance but also the child income support payments that go with it. If this second-tier system was in place that person would be able to move into a job and if the income from the job was low, would be able to retain some of the second tier payment. Therefore, there would not be the same disincentive to take up work as is the case currently, for jobseekers who have a number of children.
When we were examining the two-tier payment approach, we looked in detail at the design and the financial implications of the system. I wish to clearly emphasise that we took a particular example of how the two-tier system would work. We are not saying that this is the best possible system; we simply took an example to analyse what the consequences would be and to show how it would work in practice.
It is a matter for Government to decide exactly what limits should apply to the application of a second-tier payment, the amount of the universal payment, what limits should apply to the second-tier payment and what the withdrawal or tapering rate should be for that second-tier payment. All of those factors are inter-related but a number of different packages can be looked at to see which one would yield the best possible results.
We picked a particular package to analyse in detail and these are set out in the report. This report was completed in March 2012. The particular example we used involved taking the then current rate of child benefit which was €140 a month plus the increase for a qualified child which was approximately €30 a month. At the time, that combined rate was roughly €63 a week. We operated on the presumption that €63 a week would be the top rate between the basic rate of child benefit and the second-tier amount. The proportion universal to the two-tier is €52.48 at present. We proposed that instead the universal element would be 40% to 60% selective. This would mean that a family with one child would receive a second-tier payment up to about €35,000. We would start at a figure of €25,000. We chose that figure because that is the at-risk-of-poverty figure for a family with two children at present. There is nothing particularly sacrosanct about the figure but it is the reason we started there. If the scheme proposed in our package was to be applied, then any family with an income of under €25,000 would get the full €63 a week. A family with one child could have an income of up to about €35,000 and get some part of the second-tier payment. A family with two children could have an income of up to €45,000 and get some of the second-tier payment.
About 60% of all families would get a second-tier payment under the package we have set out. There would be a 20% withdrawal rate of the second-tier payment as payment increased. I emphasise again that this is just one possible package to illustrate how this payment system would work.
It is a matter for Government to decide what the particular limits should be. One of the major advantages of the second-tier system is the degree of flexibility it allows in that different levels of basic payment and selective payment can be made, different tapering amounts and income limits can be decided.
I wish to emphasise that we did not suggest that this would ever be done in one fell swoop; it could be implemented over a number of years. It is a matter now for Government to decide whether it should go ahead and if so, to analyse different packages to see which ones would best meet the requirements for improving child poverty outcomes and reducing disincentives to work. We are happy to take any questions from members.
I thank the advisory committee members for their work and for the excellent research which will be useful for the group's further work. I take the point that child income support is not the only determinant of child poverty. I also take the point that in most other OECD countries a relatively smaller amount of expenditure seems to be yielding better results certainly in respect of child poverty. This is because a much greater proportion of expenditure on child support is expended on services in those countries as opposed to direct income.
The terms of reference of the advisory group are quite narrow. It has been asked to consider the fixed amount to be spent on child support and to recast it in such a way as to make it more equitable. I understand the point made by Ms Mangan that just one figure of €63 has been examined and that this is based on the benefit plus the qualified child income support. That being said, if those figures are applied even with the change in child benefit, the results come out pretty much the same.
My party has examined a few models of payment. In some cases the difficulties - if I can put it like that - to which the report gives rise when using this figure are reduced and in other cases they are exacerbated. I cannot imagine any government, taking into account the national finances and people's circumstances, would be able to work off a figure which is very different to the figure proposed by the advisory group. For example, it would be unthinkable for the Government to decide to work off a much lower figure in view of the fact of the large and growing proportion of our people who have very little and consistently less disposable income on which to live. If the figure is too high it will not be cost-neutral, as is the mandate of the advisory group, with the result that the State might have to spend even more on child income support with very marginal results for our extra expenditure.
I refer to the figures used by Ms Mangan and any of the figures my party has used in our study. These show that it would help people who are solely dependent on social assistance payments, in other words, means-tested social welfare payments. The problem is that it will hit working people in the lower income bracket as well. These people might be in receipt of stamp-related social welfare payments and a partner might be working part-time or in low income employment.
For example, I refer to page 28 of the report which deals with family income supplement. This is an income supplement paid to people on very low incomes to encourage them to stay in work rather than depending on social welfare. These workers will have dependent children and they are at the lowest end of the income bracket. The report states:
More significantly, however, families in receipt of FIS, particularly those consisting of only one child, will experience a reduction in their overall income [these are the lowest income earners in the country]. Analysis carried out by DSP in the case of parents in receipt of FIS shows that over 80% would lose a portion of their income supports as a consequence of introducing a two-tier CIS payment. ... The analysis shows that over two thirds of parents in receipt of FIS would lose between €1 and €100 per week and less than 20% would gain in the region of €1 to €50. Likewise one-parent families in receipt of the OPF and FIS will see their income reduced given that these payments can be paid concurrently.
The report indicates that there are other categories in the low-income bracket, namely, people who cannot qualify for family income supplement because they are self-employed or because they are not working the requisite number of hours, and they will gain in this respect. Many people on low income who are in employment will be hit in this respect. It is also true to say that the squeezed middle, with whom we are all only too familiar, will also be disproportionately hit. Page 23 of the report states:
Therefore, in order to get desirable results on one side, one will have some very undesirable consequences on the other side.
Either option [that is, the taxation option or the two-tier system option] would mean that middle to upper income deciles would on average experience losses in their weekly disposable income, with the most significant losses being experienced by those in the middle income deciles, which is where most households with children are located in the income distribution.
One of the terms of reference of the advisory group was to bring in a system which would help to incentivise people to work. The advisory group's report states that the effect of such a system or incentives to work would be mixed at best.
On the general question of child poverty and taking the model the advisory group has used, page 23 of its reports states: "Poverty levels would reduce marginally under the two-tier CIS [system]". I recognise the work the advisory group has done. While I applaud its research and the findings and I am sure they will be useful and helpful to the advisory group's future work, I have found that using this model - or any model I have tried to put through the system - gives rise to as many, or sometimes more, problems as it tends to solve.
I have a number of questions. I was almost lost in the tables in the report. Sometimes when one looks at statistics it is hard to glean exactly what they indicate.
I welcome the fact that the group considers that the universal child payment should be paid in respect of all children. That was a good outcome, albeit that the effect of what was being proposed would be a reduced universal child payment, given the advisory group's remit that it had to be cost neutral and cost reducing. That restriction was difficult for the advisory group given that our population is increasing, more people depend on the family income supplement and more people are qualifying for the qualified child increase. Taking account of all those factors, it means that whatever the advisory group came up with at the other end would have a negative impact on somebody or other. I would love to have seen a report that would have allowed the members of the advisory group to use their imagination to formulate a child income support system that recognised the universality of the existing system and to decide how to distribute another pot of gold to tackle child poverty. Perhaps in time we will get to that. I welcome the report.
I welcomed the fact that the Minister when answering questions last week recognised the benefits of social transfer, especially in tackling poverty. I am concerned that if we start to proceed with this intended model, it will have a detrimental effect, especially when we consider the way the second tier is measured and qualified in terms of a means test, whether it is those who already qualify for qualified child allowance or family income supplement, given the changes that have occurred in FIS in particular in recent years in that more people are getting it but qualification for it is more restrictive.
Would Ms Mangan have projections for this year, and the next five years, of the number of children who would benefit from child benefit? I presume Ms Mangan would have some indication of those figures. If the population rate increases as it is currently, an extra 100,000 or 200,000 children would benefit from child benefit and that would have an effect on the overall budget. There are figures in the report on the spend, which has reduced for this year and the previous year, but the figures for the number who are benefiting is increasing. That shows the effects of this measure this year in particular on families, especially those who might not be dependent on social welfare but who are on low and middle incomes.
The report was submitted to the Minister last April but we did not have sight of it until February. Has the Minister been in contact in the meantime regarding the report or did Ms Mangan indicate to the Minister any reason to delay its publication once the advisory group had completed this portion of its work?
I thank the witnesses for the report. I welcome that the advisory group is examining the overall impact of support to children. The view is that the universal benefit will be retained and I have some questions around that. Can Ms Mangan give more detail on the reason she believes taxation would hit the lower-income families if child benefit was taxed from the point of view that those who earn the most should pay more? Why has she come to the clear position that she does not believe that taxation would be a good format to use regarding the income received in families?
Ms Mangan spoke about the two-tier system but the beauty of the universal child benefit is that very little work has to go into the administration of it. It is just paid out to everybody. If we start changing the system, how much extra work would have to be done to examine the second tier? What resources would have to go into that? Would that offset the costs that Ms Mangan said may be saved in some areas? She might elaborate more on the poverty outcomes under the two-tier payment.
Ms Ita Mangan:
I will take the questions in the order in which they were asked. In this report we did not try in any way to suggest this was a perfect solution. In fact, we clearly state that there is not one perfect solution and we recognised, as Deputy O'Dea quoted from the report, the downsides of the consequences of the two-tier system we are proposing. However, I would make two comments about that. First, any change to any system that is proposed within a cost neutral structure inevitably results in losses to some people.
It just is not possible within a cost-saving structure. I would have loved Deputy Ó Snodaigh’s scenario of being able to design a child income-support system from scratch with no restrictions on cost but that is not the world we live in and that was not the remit we were given, which would have been nice. However, I wish to make the point that some people have to lose. The big losers from the proposal we have made would in fact be middle and higher income earners because they would not get any part of the second-tier payment. Within the lower-income group there would unquestionably be losses in particular for parents with one child who are getting FIS but that would be counterbalanced by significant gains for people who do not qualify for FIS, at present and, for example, self-employed people who do not qualify for FIS, and also people who do not meet the hours requirements for FIS.
The group has gone on since then to examine working-age payments. Within that context we are looking closely at some type of new in-work benefit to replace FIS. As we all know, FIS has had a chequered history. It took years before it was accepted and for people to apply for it in any great number. It is still the case that most commentators say that not everyone who qualifies for FIS is applying for it for whatever reason, which we will not necessarily examine today. It is generally accepted – I am of the view – that it is not a satisfactory in-work payment in its present form and that some form of in-work payment is required. That is one of the areas on which the group is working at present.
Deputy Ó Snodaigh raised the number of children getting child benefit. I cannot make predictions for the future but I can point out that one of the problems for us as a country – it is also one of the benefits for us as a country – from a child income-support point of view is the increase in the number of children. For example, between 2005 and 2012 an extra 100,000 children qualified for child benefit. In 2012 we were paying child benefit in respect of 100,000 more children than we paid in 2005. That obviously has resource consequences for the Government in terms of financing it.
On the subject of where the report goes from here, it was presented to the Minister in April last and the advisory group does not have any function in publishing the report or making any decisions about it. That is entirely a matter for the Government. We have discussed the report with the Minister and a number of different bodies but it is not my function to comment on the precise timing of the publication of the report. That is a matter for the Minister.
In response to Deputy Joan Collins on the question of taxation, we did not say taxation is necessarily a bad solution; we said we preferred the two-tier option because it produced a much better level of reform of the system and because it had better poverty and incentive outcomes. The effect of taxation would be severe for certain low income families because, for example, at the current rate of child benefit, which is €130 a month, if one was on the 20% tax rate one’s child benefit would effectively be reduced to €104 and if one is on the 41% tax rate it would reduce to €77. Given that the 41% tax rate kicks in at a relatively low level of income one would have much more significant losses under the tax system if one were to introduce a tax on child benefit than one would under the model that we have set out. I repeat again that the model we have set out is only one model.
As Deputy O’Dea pointed out, the poverty outcomes for the model we produced were marginally better but it seems to me that any improvement in poverty outcomes is worth trying to achieve. Depending on which particular model one picked, the poverty outcomes might be better in some models. I agree with the Deputy’s analysis that finding the right mix of amounts and tapers would be difficult but it still can be done. Improvements in poverty outcomes are always desirable and worth pursuing. I will invite Dr. Sweeney to add to what I have said.
Dr. John Sweeney:
I wish to emphasise that our starting point is not ideal because there are huge inequities in the current system. We find it difficult to divert money on behalf of children in low-income households without creating distorting work incentives. We find that children in low-income households, whose numbers have risen hugely, are being treated inequitably. The lucky few are in receipt of FIS but there are many who are not. What we are looking for is a versatile instrument that can solve these aspects of the child income transfer issue. We fully accept that the services agenda is much more interesting. What we propose is an instrument that is quite versatile. There is much reported consensus on keeping child benefit universal. We did not have to agree on a rate for child benefit. A universal payment of untaxed child benefit could be paid at the rate of €5 a month and the principle of universality is respected. The difficulty is in trying to maintain the universality, in particular of an untaxed child benefit, at the rates to which we have grown accustomed. That is causing huge pressures on the State.
Ms Ita Mangan:
I am sorry Chairman, I did not answer Deputy Joan Collins’s question on implementation costs. The first thing I should say is that the proposal is implementable. It will involve some costs to the Department of Social Protection because it will require some further development of IT systems. Ms Leonard might wish to contribute further on the issue. However, the Department is happy that it can be done without incurring major costs. The proposal is that from the point of view of assessing whether people would qualify for the second-tier payment there would be an online application system similar to the ROS system for taxation, which would be self-assessed to a degree, obviously with controls. It would take approximately 18 months to implement the system if a decision were made to go ahead with it. Ms Leonard is more of an expert on the matter.
Ms Teresa Leonard:
The implementation of the proposal is couched in the knowledge that the decision must be made by Government. Following the discussions that are taking place on this very good report the Government will make a decision. In the event that a decision is made, as pointed out by Ms Mangan, it would take the Department a period of time to implement the proposal but we would be able to do so. A number of issues require to be addressed in order to implement such major change in terms of policy, legislation, technical issues and operational issues. We already have universal payments partly in place. Reference was made to the fact that it just happens but it does not just happen; it takes a bit of work to make it happen. In conjunction with that we would have to do quite a lot of work but it is doable should a decision be made by Government in that regard.
I thank Ms Mangan and her team for the report and her presentation. I wish to comment on the model presented as part of the report and the upper income threshold of €25,000. I accept Ms Mangan has stressed that this is an example not a recommendation. The figure is low. I would prefer the income threshold to be set at a higher rate in order to best protect those struggling at this time. The report appears to be confined to that one example and therefore is the only reference point to which people refer. It is important even at this stage to add a supplement to the report and to provide another example at a different rate of perhaps €35,000.
At least there is something other than the €25,000 threshold model to talk about. If it were possible to do this, it would add to the report.
If the two-tier model is to proceed, which is Ms Mangan's preferred model? The annual savings compared to the existing child income support measures would be in the order of €186 million, rising to €193 million as a result of savings in the case of secondary benefits. My position is that such savings arising from reform of the child benefit system should be targeted at the delivery of high quality child care services. The lack of affordable child care services is a major barrier for single parents in returning to the workforce, which is the desired outcome for people considering this issue. Any change to the child benefit structure must not be a simple cost cutting exercise but part of broader reform, including the delivery of affordable child care services. Would Ms Mangan be in favour of savings being targeted at the provision of affordable child care services? One of the members of the advisory group, Ms Mary Murphy, spoke about this matter on television some time ago and it appears that at least some members of the group would be in favour of providing the type of child care service that is essential if we are to get people back to work and avoid the poverty trap.
I will contribute later on other issues if I get an opportunity to do so.
I welcome the delegates. They had a difficult job, but at last somebody has tackled the issue.
I wish to make some observations. On the make-up of the advisory group, I note with disappointment that it does not include a representative of the Children's Alliance, Barnardos, the Society of St. Vincent de Paul or the National Women's Council of Ireland. It is mostly made up of departmental officials who, obviously, will try to make savings for the Department. I am not taking from the work of the group or implying it was not done properly, but such representation would have been welcome in seeking the point of view of the organisations mentioned.
Many statistics, facts and figures have been given to us, but I note that child benefit payments benefit 1.16 million children. If we take account of family income supplement, we are talking about a mere 57,000 children, which amounts to a huge difference. The family income supplement figures have been stagnant since 2009. There was a €6 increase in 2010 and the supplement benefits people to the tune of €360. In addition, self-employed persons are excluded and we all know that the self-employed are suffering, as they have nowhere to turn. They are even finding it difficult to access social welfare payments when their businesses go belly-up, so to speak. Those who are struggling have nowhere to turn to for help. Therefore, the reduction in child benefit will hit the self-employed.
While I agree with it being a universal payment, it is very difficult to stand over this when we see the figures bandied about in recent hours for the wages earned by individuals in the banking sector. If they have children, they, too, qualify for a universal payment, yet this morning I heard a woman say on the Pat Kenny radio show that she had to go to the community welfare officer for money to buy a pair of shoes for her child because she could not afford to buy them. She said she had sent the child to school in her Wellingtons this morning because she could not buy the child a pair of shoes. I am sorry, but it claws at my heart to think that is happening in this country.
The reduction in child benefit will affect people badly. In particular, it will affect low to medium income earners who may have an income of, say, €50,000, but what is their disposable income at the end of the month? Many of the people concerned who are working may have less disposable income than someone on social welfare by the time they pay all of their bills. We must closely examine the base figure. I accept it is not the job of the representatives to do this but the Government's. This entire issue warrants a much deeper discussion, perhaps among the members of this committee without the representatives being present. Other groups are due to come before the committee to discuss it, but before the Government makes a decision, we need to discuss it in detail.
When we debated this issue in the Seanad at the time of the budget, I recall the Minister for Social Protection saying she would not implement these changes until a proper child care system was in place. When I refer to "child care", I mean child care services in rural Ireland, as well as in urban Ireland. I live in rural Ireland and know how difficult it is for someone working to have a child attending a rural school. If someone is working in a nearby town and he or she has to collect the child to bring him or her to child care, it does not work. We must examine the model where after-school care is provided in rural schools. I am aware from speaking to a number of the schools that they are willing to co-operate and put in place child care services for children after school.
With Ms Madden, I was not in favour of taxing child benefit because I had worked out the same figures as her for the way people would suffer whether they were taxed at a rate of 20% or 40% and reckoned that low paid workers would be hit extremely hard. I seek clarification from the Department on how it will administer the payment. We are all well aware of the delays in administering any means-tested payment and Ms Madden is talking about means testing a large number of families. She can give it whatever name she wishes, but it is means testing. If we take farmers as an example, it is proposed to take into account farm holdings worth over €750,000 for third level grant purposes. Will that happen in the case of child benefit? What about individuals with second homes? It is always easy to administer measures for PAYE workers, but we need much more detail on the way this process will be administered. I accept Ms Mangan has said it can be done, but will she tell us how it can be done and how long it will take to means-test every family in the country?
If time permits, I will contribute again. I thank Ms Mangan who has many questions to answer, but that is the reason we are here.
Ms Ita Mangan:
I will start with Deputy Brendan Ryan's questions. We have picked the threshold of €25,000 because that is the risk of poverty limit for a family with two children. It is interesting that €25,000 is also the limit picked recently in respect of the deferral of property tax. It appears to be the figure used at a number of these sessions. That is the reason we picked it.
Ms Ita Mangan:
Exactly. We are not saying it is sacrosanct.
I draw the attention of members briefly to page 65 of the report on which we show other possible packages. We do not provide a detailed analysis of the consequences of these packages, but we do show the numbers who would be affected and so on. We have finished the report. Unless we are asked by the Minister to revisit these issues, we will not be doing so, but there is no great difficulty in the Department of Social Protection making the relevant analysis if it is decided on principle to proceed with this proposal.
On whether the savings should be targeted at child care services, I should have emphasised in my opening statement that we were looking exclusively at child income supports. We were not looking at services. However, we acknowledge the importance of services. Everybody on the committee is very clear on their importance.
On a personal level, were all the savings from child benefit to be targeted at child care or related measures, I would be extremely happy. However, that is not for the advisory group to recommend because it is not what we were asked to do. As I stated, everyone is highly conscious of the role services play in improving poverty outcomes.
In response to Senator Moloney regarding the make-up of the advisory group, it is composed in almost equal numbers of external experts and departmental representatives. As the Senator noted, it did not - this obviously was the choice of the Minister and the Government - include any of the pressure groups. However, we invited and received submissions from all the pressure groups. My understanding was the idea was this would be purely an expert group in the sense that those involved would try to come up with a cold analysis of what was possible, without being involved in any particular lobbying for any particular area. A number of the submissions we received from lobby groups and NGOs favoured the targeting of the pot, if you like, of payments towards the lower end of the scale. However, I think a lot of pressure groups would find it difficult to find the point at which such targeting should occur, just as have we. However, they played a significant role in sending in submissions, all of which were taken into account.
As the Senator correctly noted, the numbers receiving child benefit are 1.16 million and approximately 73,000 children, or rather their parents, receive family income supplement. Consequently, there is no doubt but that child benefit is a much more important issue than is family income supplement. One feature that I found to be quite alarming is that almost half of the children of this country are living in social welfare households. Something like 47% or 48% are living in households that are receiving weekly social welfare payments. While a few of these households, namely, those which are in receipt of insurance payments, might be adversely affected by the proposals suggested here, the vast bulk of them would not be affected by the proposals. Perhaps the most worrying point is not that they would not be affected by the proposals but the current position whereby so many children are living in households that are dependent on social welfare. The solution to this is not better or worse child income support payments but is employment and getting people off social welfare. This is one of the greatest issues that must be addressed but again, our group was not tasked with looking at that particular issue.
I will leave it to the Department to answer in detail the question of how it will be administered. As Ms Teresa Leonard fairly pointed out, it cannot be administered unless there is a decision by the Government to go ahead with it. Nevertheless, I note that significant numbers of children are already in households receiving means tested qualified child increases. They are already being means tested. Moreover, farmers are already being means tested for farm assist and all sorts of other payments. Consequently, means testing is not new or particularly difficult for the Department of Social Protection. There may be some delays in respect of means testing some of the people but there is no particular difficulty about it. For example, farm income in the Department of Social Protection's means test is entirely based on the actual income from the farm and not on the capital value of the assets or anything like that. There is no suggestion in any of this that there would be any change to the manner in which the Department of Social Protection means tests people who are applying for benefits. Moreover, the number of new people to be means tested under the system would not be as large as the number of beneficiaries would suggest because a highly significant number of them are already being means tested, for example, for disability allowance, jobseeker's allowance or whatever it is.
Ms Ita Mangan:
Yes, but the additional number to be means tested is not as large as it might sound from the fact that 61% would qualify for the second-tier payment. While I cannot give members the precise figure off the top of my head, of that 61% something of the order of 45% already are being means tested and, consequently, the additional means testing is not as great as it sounds. However, Ms Teresa Leonard knows more about this than do I.
Ms Teresa Leonard:
On that issue, it really goes back to the point that we have no Government decision. It is up to the Government to decide. What we have done is preliminary work on the matter, given there are three basic areas that would require exploration when moving in this direction. One I mentioned earlier pertains to policy issues, which include consideration of means testing and what would be part of a means-tested scheme. As Ms Mangan pointed out, the parents of approximately 48% of children involved in child benefit are already in receipt of a means-tested payment and this issue would require examination. I stress the point that this is just an initial view of the issue but I suggest those who may already be in receipt of payment from the Department would automatically have an entitlement to the second tier or within parameters. Second, as for the other proportion of persons who would have a possible entitlement to the second tier, members should recall that I am talking in a vacuum here. We would be obliged to put in place a method whereby we could collect data from them to assess their entitlement for the second tier. In a personal rather than an official comment, I note that one of course would seek to put out information that would identify clearly to people whether they were not in the category. The Senator herself noted it bothers her when she hears of people with bank sector incomes and so on. Such people evidently would learn very quickly that they were not in the second tier and, consequently, I would expect not to be getting applications for second-tier payments from that category. Consequently, by default, the numbers again would start to moderate back to a manageable piece within an income range. We would be obliged to give consideration to building technologies to allow us to automate, as much as possible, that process. Again, this is for a future decision and once such a decision was forthcoming, we would work at that particular area.
That is roughly how we would do it and how we would manage the doing of it, but in addition there would be a requirement, should a decision be made by the Government, to introduce legislation to support this particular change. There also would be a requirement on the Department to develop technology to support it because, as was identified earlier, we have had backlogs in particular areas about which we recently have done a lot of work to clear. However, we do not wish to end up in a position where the introduction of a measure such as this had the consequence of parents suffering a further additional backlog. Consequently, the Department would be obliged to do a lot of work. I cannot give the finer details to the Senator because they do not exist at this point.
Dr. John Sweeney:
We played around with some of the key parameters and asked what if the threshold were €30,000 and not €25,000. We are able to state it means another 6% of all families would be included and it would cost €125 million more than our baseline example. They are all illustrated in table 3 on page 66, which shows there is a large tranche of families who currently are in receipt of means tested social assistance, that is, 37% of all families, who will be untouched by whatever we do to the parameters. However there is a highly volatile middle group, which can be as small as 13% or as large as an additional 41%, which would receive some element of the second tier. This is the heart of the versatility of the instrument and where political decisions must be taken. The model we adopted as baseline adds a further 24% to the original 37% or, in other words, 37% of families already are being means tested for social assistance and because of the normative way the second tier is presented, one automatically would get another 24% of families, bringing us to 61% of all families in the State who would get some degree of the second tier.
However, it could go up to 78% if the revenue buoyancy was there. Table 3 provides a good sense of what subsequent Governments would be able to moderate.
Before going back to other members of the committee, I have a couple of questions. As regards the issue that taxation might discriminate against married couples compared to cohabiting couples, is there a view that it might be unconstitutional? There has been case law to that effect before now concerning taxation decisions. Did the advisory group consider the costs involved if cohabiting couples were to be taxed the same as married couples? I tabled a parliamentary question about that recently and the Minister put a figure on it of €1 million for every 1,000 couples if cohabiting couples were to be jointly taxed. According to the census, however, there are around 168,000 cohabiting couples. While not all of them would necessarily register as such, it could cost up to €168 million to provide equal tax treatment for married and cohabiting couples. Did the advisory group consider that matter? It would be important to take it into account.
It seems that it would take some time to put this in place, so am I right in thinking that one could not do it for the budget in October? What therefore would be the ideal timescale for this matter? Would it be phased in over a number of years?
Dr. Sweeney mentioned the working age payment report, but when is that due? Would it be better to wait for that report before implementing this one?
I asked earlier about the report that was produced by the Department in April and given to the Minister. I was not asking the witnesses to comment on what the Government does or does not do once it receives a report, other than confirming that there have been discussions since then. In some ways, the budget changed everything in the report. One of the promises or suggestions that the Minister made was that changes in child benefit would be ring-fenced to tackle child poverty. It might have made it a bit more palatable if the money that was saved from child benefit in this year's budget cut had been redirected towards a qualified child allowance or the recognition of children under the family income supplement. That would be a mechanism without creating a two-tier child income support system. We already have such a system through child benefit, the qualified child increase and the family income supplement, without creating another payment. We do not have that luxury.
I am not necessarily asking the witnesses to comment because it is up to us to ask the Minister to examine a cost-neutral redistribution. In that way, part of a payment could be shifted to specifically target child poverty. The qualified child increase was introduced in the first place to identify those who are totally dependent on social welfare. The family income supplement identified those who are classified as working poor. Did the advisory group look at that as a model, rather than creating a two-tier system, to use existing payments while broadening payment levels or thresholds?
In response to an earlier question, Dr. Sweeney said he did not pretend that the proposed solutions were perfect, but we know that. He also made the point that when a fixed amount of income is being redistributed, there will be winners and losers. I can understand that but surely we should be aspiring to an ideal whereby people at the top of the scale - the richer ones - should suffer most, while the poor should gain most. I know that we cannot achieve perfection but, no matter what example is used, these recommendations fall a long way short of that. A hell of a lot of poor people will lose quite substantially if those recommendations are implemented. I do not care which figure is used but we should consider the examples. A lone parent earning €20,000 per year with one child and the lone parent's allowance will lose. A married couple earning €30,000 a year will also lose, as will somebody earning €35,000 with one child. I do not think anybody could describe a person earning €35,000 a year gross, with one child, as being particularly well off.
At the other end of the scale, one may take the example of a person earning €60,000 while their partner earns €40,000. On a total income of €100,000 they will lose €1,140. Meanwhile, a family with an income of €250,000 will lose €760 which is slightly more than half what the people earning €100,000 will lose.
As regards what people on the family income supplement will lose, it was said that a compensatory factor is that those who do not currently qualify for FIS will gain. I agree with Senator Moloney who bemoaned the absence of FIS for the self employed. It is a very good point. If I am an employee working the requisite number of hours and am in receipt of FIS, I will lose money but it does not make me any happier that somebody else who was not gaining it up to now will do so.
I have two questions for the departmental witnesses. First, can they provide some other figures or examples and circularise them as quickly as possible? Second, it was stated that the report will probably have to be implemented over two or three budgets, and I accept that. However, if it will take so long to be implemented - and if it is the Government's intention to implement it - should they not start in the next budget in October? Has the Government indicated that it will start to implement this report? We are now coming towards the end of March and the budget is in October. Surely the preparatory work would want to start now.
I have two brief questions. Has the advisory group looked at how the system will operate for separated couples concerning who will receive the child benefit? If there is shared custody of the children they do not get the one-parent family payments, so will both incomes be taken into account? Or will it be the income of the person with whom the child is living? I wonder how that will work.
When we suggested a different baseline, the witness immediately came back with a figure of how much it would cost the Department to introduce a higher baseline. Was the Department dictated to or told to stay within a budget when this report was being prepared, or is it being based on the advisory group's own findings?
We need assurances that the design of any top-up or two-tier process to be introduced is done in such a way as to minimise the hassle for ordinary people.
Low and middle-income families could be faced with cumbersome and stressful administrative processes. It might be difficult for people to apply for top-up payments. If problems occur, social welfare inspectors will be involved. Even with the current system there are long waiting lists and an appeal process that takes considerably longer than acceptable. This will add to all of that pressure on the Department and its appeal system, which will not be beneficial for the people we are targeting to benefit from this.
Ms Ita Mangan:
The Chairman asked whether introducing taxation might discriminate against married couples. The principle is very clear from the tax cases of the 1970s and 1980s. It is not permissible for the Government to treat married couples less well than it treats unmarried couples. That is the basic principle from which any consideration of the issue must start. To put it into ordinary terms, the legal problem with the taxation of child benefit is as follows. There is no point in trying to tax child benefit if it will not yield some results. Let us consider the traditional situation, which, I accept, may not apply in all cases, where the father is out working and the mother is minding the children. The mother is the recipient of the child benefit in all cases. If she does not have any other source of income, she would not be liable for any tax on the child benefit and so introducing tax would not have any effect. However, if she is married, her income can be ascribed to her husband and he can pay the tax on it. If she is not married, that cannot be done. So there is clearly scope for discriminating between married couples and cohabiting couples.
When we are reviewing working age payments we will consider the issue of whether the tax system should be changed to tax cohabiting couples in the same way as married couples are taxed because the unit of assessment for tax purposes is one of the issues we need to review. I am not familiar with the details of it yet because we have not yet examined it, but I recognise that it would cost some money to treat cohabiting couples in the same way as married couples are treated under the tax system. I again refer back to the property tax, which will consider the joint income of cohabiting couples from the point of view of deferrals of the tax. It is very unusual for the tax system to treat cohabiting couples in the same way as married couples, but that is one area in which it does so at present. That can be reviewed - we have not yet considered it, but we will.
I will ask Ms Teresa Leonard to address the issues on timing and phasing because she knows it better. We have already said it would take about 18 months to implement this system fully. The report also points out that the advisory group did not envisage all the elements of it would be introduced in one fell swoop. Interestingly, savings in child benefit were made in the recent budget. I am slightly hopping between questions here because Senator Moloney asked if we were given a budget within which to work. The answer is that we were not, but our terms of reference very specifically provided that we would be cost neutral or cost reducing. The package we analysed in detail is based on an assumption of €200 million of savings. The reason it is based on that assumption is not that we were told to find €200 million worth of savings, but simply that we were trying to compare the two-tier system with the taxation system. If everything could be taxed and if the issues over legality, etc., could be addressed, the taxation system would yield approximately €300 million. We were trying to compare like with like as far as possible. I have to say we are talking about apples and oranges, but we were trying as far as possible to do that. The example we have given involves savings of €200 million from the 2012 expenditure rates. Some of those savings have now been made by the reduction in child benefit in the recent budget. In some ways, part of this is implemented, but the more difficult part is not implemented.
I recognise that I am hopping between questions, but I am trying to keep some sequence in my head. Deputy Ó Snodaigh asked whether we felt the savings in the recent budget should have been targeted at QCIs or FIS. We were very clear that was not a good idea. The problem with QCIs is not that they are not going to the less well off, which they are, but that they inherently create a disincentive to work. Increasing QCIs further would further increase the disincentive to work. As members will be aware from the ESRI studies, the disincentive to work does not arise for single people or possibly even for people with one child. The disincentive to work in our system arises in the case of families with a number of children. Transferring any of the child benefit amount into QCIs by definition disimproves the incentive to work and we were very conscious that this should not happen. That is why we recommended instead of that having a second-tier payment which would not be contingent on receiving a social welfare payment, but would be there for those with low income.
Deputy O'Dea suggested that the rich should lose most. Any reform of child benefit and the associated child income support payments can only take what they are getting so the maximum that can be taken from rich people is the child benefit amount they are getting and we are not in favour of removing the universal element. As Dr. John Sweeney said earlier, we are not saying what the universal element should be, but we believe there should be some universal element. The vast majority of children do not live in very rich households. Some 80% of children live in households earning less than €80,000. More importantly 20% live in households earning under €20,000. Most of us who have had children deeply regret that we were not earning as much when we had them as we might have done in later life - that is just a life cycle reality. The vast majority of children do not live in really rich households. While of course a few do, the system should not be geared to the relatively few who live in very rich households. Taxing child benefit would, of course, reduce the income for very rich households. However, the maximum that can be taken from very rich households is whatever is taken off the basic child benefit because they are not getting the other benefits.
On Deputy O'Dea's second question, I would love to do some other examples of processing all this, but I am afraid it is for the Minister and the Department to decide whether resources should be put into this. It seems clear to me that resources should only be invested in further analysis if the principle is accepted that we move in that direction. If the principle is accepted, clearly major work needs to be done on the different possible packages and their effects. Before I ask Ms Leonard to address Deputy Ryan's questions about minimising hassle, etc., I ask Dr. Sweeney to make a few points.
Dr. John Sweeney:
If we were to use savings from child benefit to improve FIS, given that the withdrawal rate from FIS is high, there would be a disincentive to improve earnings. It is a potential silver lining for some of those who might lose out on the amount of their FIS that if they were receiving a second-tier payment instead, there would be much less of a penalty for working extra hours and earning more.
Ms Ita Mangan:
I did not answer Senator Moloney's question on separated couples. That all boils down to the precise arrangements and whether they are getting lone-parent payments or whether they are living apart. We would need to settle on many details for that. I understand the problem the Senator has outlined. If, for example, a separated couple are still legally married, they come under the married rules for taxes, etc. Once they become divorced, they are single parents rather than separated parents.
It is quite a complex issue. I do not see it as a major problem that cannot be resolved because we are already resolving it in all sorts of other areas. Does Ms Leonard wish to take the hassle?
Ms Teresa Leonard:
I am not quite sure which questions I have at this stage. I keep repeating this but the decision is a matter for the Government and there is no decision at this point. It is a matter for the Government in the context of the debates that will take place on this issue and whether it is to be brought forward in a Government agenda for the next budget. That is strictly a matter for Government.
Deputy O'Dea asked where we see the budget which is only so many months away. It goes back to a point just made by Ms Mangan about producing further analysis on this. Given the investment and resource time available to do that, until we get some clarification, one must question where this is going. Naturally, we have done preliminary work on this and broad outlines of what it would look like as a package should the Government make a decision to put it down. We have indicated how much time it would take us to do this, to support it and, as Deputy Ryan put it, to put in place a system that would not cause too much difficulties. We do not want to cause any difficulties for customers so it would have to be a system that is easily operated by our customer base and available to it in a timely manner so we can react quickly to it.
With all that in mind, we have not invested in doing in-depth analysis until we get a Government indication or decision that it is going down a particular route. To be fair, that is not the remit of the Department. Giving that indication is the remit of Government.
Ms Mangan has replied to a question relating to a number of budgets. The report clearly says that this could be brought in over a number of budgets but, again, it raises the question of how, if one makes savings, one ploughs them back and the method and timing by which one does them. Ms Mangan answered the question about separated customers.
The point surely is that if one takes the example on which the Department has worked, I would find it very difficult to recommend to the Government that it accept it because as many people will be hurt by it as are helped by it. Therefore, should more research not be carried out on this to see whether it works better on any figures to the point where we can recommend it?
Mr. John Bohan:
There are two things at issue here. Certainly if the committee would like put a number of different permutations or combinations of the payment to us, we can work on them and do a similar type of analysis. We are happy to do that. I would sound a word of caution. The model we use is the ESRI switch model which is well-established in this area. The analysis that was done for the group was obviously based on a particular number of budgetary parameters at the time. They were the pre-budget 2012 parameters. One would have to update them to compare like with like. That model changes itself because the ESRI re-bases it when new income data come out. With that in mind, if the committee wanted us to recalculate the numbers or do a number of different options, we would be happy to do that.
I thank our guests for briefing us so comprehensively and answering all our questions. We will have a follow-up meeting on this issue with NGOs and interested groups so we will be having further meetings on the matter. We will probably produce our own recommendations. This meeting has been a very helpful start to that process.