Róisín Shortall (Dublin North West, Labour)

In the April budget, the Minister for Finance announced that child benefit would be means-tested or taxed in the following budget - all he needed to do was to work out how to do it. Eight months on, he still has not managed to do that. Rather than accepting that he cannot achieve savings the way he intended to do, he is still intent on achieving them anyway. Some Ministers apparently favour a straight cut across the board while others favour a three-band system. The only certain thing is that the Government is intent on targeting families and children.

The motion before us tonight calls on the Government not to cut child benefit in the forthcoming budget for a number of reasons. Cuts in child benefit are not acceptable because family incomes have already been significantly cut in the past two budgets. There should also be no cut in child benefit because of the continuing high cost of raising children, including the cost of child care; because there is no recognition in the tax system; because of the damaging effects such cuts would have on the economy; and because any of the proposed reforms would create poverty traps, create work disincentives and increase the risk of child poverty.

Child benefit is a payment made to parents, usually the mother, in recognition of the significant extra costs in rearing children particularly in households with young children. It arose originally as compensation for and recognition of the high costs associated with rearing large families. In more recent years, it has developed as one of the most important social policy instruments because it provides protection against child poverty, but does not create poverty traps in doing so. It provides income support for children regardless of their parents' means, marital status or work status. It provides a financial buffer for parents who leave the workforce in order to care for their children. In the case of parents who remain in the workforce, it contributes to the extremely high cost of child care.

It is precisely because it is such a key instrument of social policy, and precisely because it seeks to achieve so much, that child benefit is a relatively generous payment. It is a payment greatly valued by women, often long after the payment ceases, because it recognises the role that women play as mothers and carers. For many women, it is the only direct payment they receive.

It is not good enough for the Government to claim that just because the bill for child benefit has now reached €2.5 billion, it must be cut. We must consider what child benefit is achieving and how cuts would adversely impact on thousands of families. Child benefit needs to be relatively generous because there is no recognition of children in the welfare or tax systems, and because there is a complete lack of State-supported services for children.

In my constituency, as in many others, it costs €65 to bring a child to the doctor. Child care costs more than €1,000 per month for five days a week and more than €700 for three days a week. While the cost of living has come down generally in the past 12 months, these two costs that impinge heavily on parents, child care and doctor visits, have remained at the same level and in some cases have increased. In other countries, parents can rely on affordable access to a doctor, good early childhood education, public child care and a range of options for older children. Child benefit here essentially compensates parents for a lack of investment in those critical services for children.

Families with children also tend to have big mortgages. Large numbers of families are already struggling to fund these mortgages even with reduced interest rates because of job losses, reduced hours or pay cuts. It seems that the Cabinet has forgotten that families have already borne the brunt of severe cuts. The April budget shamelessly targeted families. It reduced mortgage interest relief; halved the early childcare supplement and will abolish it from January. As a result of that budget, parents of young children will lose several thousand euro a year - as well as taking pay cuts and increases in levies along with all other workers.

Child benefit has already been cut for 18 year olds, a decision which will lead to a much higher rate of young people dropping out of school and college. There is no attention in Government and little in the media given to the cumulative effect of the past two budgets' cuts on family incomes. By my calculations, a single-income couple with two children on an income of €40,000 - not especially well off - lost €250 per month from the decisions taken in the April budget. This will increase to €330 per month from January when the full effects of that budget take effect. This means that such a family will already have €80 less per week to spend before any changes in next week's budget. This is on top of the several dozen cuts, charges, taxes - and for public service workers, pension levies - introduced since the October 2008 budget.

Since April, a welfare dependent family has lost €125 per month so far and this will rise in January. Since April, a double-income family on €70,000 has lost €330 per month so far and this too will rise from January. There are only so many times the Government can go back to the well. One public sector worker contacted me yesterday expressing his dread at the prospect of the coming budget because along with the cuts he and his family have already suffered, the Government has indicated he will need to take a cut in pay and most likely a cut in child benefit next week. That man is dreading next week's budget because as it is he can barely survive. He can barely sustain the kinds of cuts he has suffered in the past two budgets and any further cuts to his family income will simply be unbearable for that family. That situation is mirrored thousands of times over throughout the country. The bottom line is that child benefit has become an integral part of the family household budget. Parents depend on it to provide for their children and cutting it will cause hardship in a great many cases.

Let us consider what the experts have said about the Government urging that child benefit should be cut. The ESRI, the McCarthy report, the Commission on Taxation and the Minister for Social and Family Affairs in conjunction with her departmental officials have all considered reforming child benefit but none of them has come up with a practical and fair way of achieving savings. The ESRI could not work out how to tax child benefit without major legal and bureaucratic problems so it simply opted to recommend a 20% across the board cut. That is simply not good enough. It is obvious that a 20% cut places a far bigger burden to those on low incomes than those with greater means. There is no fairness in that and in terms of child poverty such a cut across the board could reverse much of the progress in tackling child poverty in recent years.

The McCarthy report was even worse. As the Tánaiste admitted, there is no social policy in the McCarthy report. With equal disregard for its effects, it too advised a 20% cut across the board and the standardisation of rates without regard for their potential impact. Anyone could do that. It was silent on how this could be done in a workable way and where costs would not make it counterproductive. It was a similar story with the Commission on Taxation, which recommended the taxing of child benefit but could not outline exactly how it would work. Its report stated:

Child benefit should be taxable income.

- The taxing of child benefit should be benchmarked against alternatives, including means testing, to ascertain the most effective method of achieving the aims and objectives of the child benefit programme.

- If taxation is applied, we recommend the introduction of a child tax credit to offset the additional tax payable in respect of child benefit for those in the lower half of the income scale.

All of these approaches are intellectually lazy and disregard the available evidence on the effect of across-the-board cuts on child poverty.

In fairness to the Minister, her Department considered the issue in more detail. On "The Frontline" a few weeks ago, the Minister suggested the Government might favour a three-banded approach with no cuts for those on welfare or family income supplement, some cuts for those on low and middle incomes and larger cuts for those on higher incomes. I have no problem in principle with lower income families receiving more in child support than families with very high incomes. However, wanting this and actually achieving it are two different things. First, the biggest advantage of the universal entitlement is that it creates no disincentive to work and no poverty trap. As soon as it is means tested, it will become a poverty trap. The concentration of child benefit on lower income groups would stigmatise the payment and create major anomalies for any parent going from welfare to work. The welfare system is already riddled with poverty traps such as the rent and mortgage supplements and the rules concerning the back to education allowance and the back to work enterprise allowance. We do not need more anomalies.

In addition, such a change would be an administrative nightmare. Already this year the Revenue Commissioners have struggled to handle the changes in mortgage interest relief and income levy. The Government has no idea how much extra it will cost to assess entitlement. It does not have enough staff to ensure jobseekers' applications are processed in time, so how on earth will it manage even more work? The Minister's proposal that high earners declare themselves as such is laughable. The wealthy have never declared their income for tax purposes, so why does the Minister expect them to change their ways now?

Relying on the family income supplement is fraught with difficulties. FIS continues to suffer from chronically low take-up rates. Only 25,000 families are currently in receipt of payments. In addition, it excludes the self-employed and workers with intermittent work patterns, and does not factor in costs such as child care and mortgage repayments.

It is disappointing that there are other revenue raising options available to the Government but it refuses to consider them. The Government has a duty to find savings where it can. The Labour Party accepts that adjustments worth €4 billion are required this year. However, the Government must also pursue policies that will have the least impact on the economy and on jobs. Cutting back on child benefit is one of the most deflationary things possible. It will lead to further job losses in crèches and in the retail sector. It will take hundreds of millions of euro out of the domestic economy at a time when it needs a stimulus.

The State spends about €2 billion a year on unnecessary tax subsidies. About €600 million goes on relief on rental income for landlords, €400 million on property reliefs, and several hundred million on various forms of pension relief for the very wealthy. It is incredible that the Government can so easily overlook these areas when formulating a budget for 2010, especially as cutting back on these is likely to be far less deflationary than cutting child benefit.

If the Minister is really interested in ensuring that child benefit does not go disproportionately to the better off, the fairest and most practical way to make savings is not to have three bands of child benefit but to have three bands of income tax. Various reports suggest the Government is seeking to save more than €300 million by cutting back on child benefit. The Government could raise just as much money by increasing income tax on the balance of single incomes that exceed €100,000. This would avoid targeting families and exclude low and middle income groups. The Revenue Commissioners estimate that such a tax would yield €355 million.

I cannot understand the Government's approach on this. Why is it so afraid of taxing the better off and yet so intent on cutting child benefit? In a few minutes the Minister will stand up and tell us she does not have any choice in the matter and that savings must be made from the social welfare budget. However, this is not the case. The reason the social welfare bill is so high is not that welfare is too generous but that there has been such an increase in unemployment. The obvious way to reduce the social welfare bill is to get people back to work and safeguard jobs. The Government has utterly failed to do that.

The public, while understanding the need for a difficult budget, will simply not tolerate the Government's taking the easy option of cutting social welfare while refusing to cut corporate welfare. Fairness demands that cuts must start at the top. Responsibility demands that the Government tackle the budgetary situation on that basis and that some element of consensus be achieved. If the combined efforts and collective intellectual weight of the ESRI, an bord snip nua, the Commission on Taxation and the Department of Social and Family Affairs cannot come up with a workable - not to mind fair - way of cutting the child benefit bill, the Minister herself is unlikely to be able to do that in the next seven days.

The Labour Party suggests the establishment of three rates of tax rather than three rates of child benefit. This would avoid creating new poverty traps; it would not hit families; it would target the better off in obtaining savings; it would have public support; and it would achieve greater savings for the Exchequer. I ask the Minister to engage in an honest debate on this issue and give us her views on the Labour Party proposals. I challenge her to tell us why she is not prepared to target the better off but is intent on targeting children and families.

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