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.