Mary Hanafin (Dún Laoghaire, Fianna Fail)

In considering the various options to make savings in this area we were conscious that the payment can be an important source of income for all families for various reasons. Some families rely on it to buy basics such as food and clothes. For many women, it makes it possible for them to work outside the home by helping with child care costs and even for women in high income families, it may be the only money paid directly to them. The Government decided, therefore, against withdrawing child benefit completely from any family. We also decided against taxing the payment. Apart from the significant administrative complexities that taxing child benefit would involve, that proposal also has the major drawback that it would lead to a cut of up to 20% of the child benefit payment for tax units on the standard tax rate, and up to 41% of the payment for tax units on the higher tax rate, which would reduce its value to €100 from €166.

Given these elements, the 10% cut across the board is a fairer way to achieve the required savings, while protecting families who are dependent on welfare or in low income employment. To this end, the lower rate of child benefit, paid in respect of the first and second child, will be reduced by €16 to €150 per child per month. The higher rate of child benefit, which is paid in respect of subsequent children, will also be reduced by €16 to €187 per child per month.

Families with children dependent on social welfare will be fully compensated for the reduction in child benefit by getting an extra €3.80 per child per week in the qualified child increase paid with their main welfare payment. Approximately 363,300 children are expected to benefit from this measure. Families which currently receive a half rate qualified child increase because they have other household income, and are not totally dependent on welfare, will receive an extra €1.90 per child per week in welfare payments. Approximately 128,600 children are expected to benefit from this measure.

The family income supplement, FIS, income thresholds are also being increased by €6 per child per week to compensate low-income working families for the cuts in child benefit. This will translate into a weekly increase in FIS payments of €4 per child. Approximately 57,380 children are expected to benefit from this.

I appreciate cuts in child benefit will be difficult for some families. However, it should be recognised that the payment will remain very generous compared with other countries and that the Government is also making a substantial contribution towards child care provision, including the introduction of a free preschool year from January 2010.

The next area where cuts will be made is the weekly rates of payments to people aged under 66 years, which are being reduced by about 4.1% or an average of €8.30 per week. Proportionate decreases are also being made in payments for the qualified adult dependent spouse of the main welfare recipient. However, where a claimant is 66 years or more and has a qualified adult aged under 66 years, there will be no reduction in the rate of payment for the qualified adult.

During the past 12 years, the Government has delivered unprecedented increases in welfare rates. The jobseeker's allowance has increased by 129%, the disability allowance has increased by 129%, the carer's allowance for those aged under 66 has increased by 147% and the one parent family payment has increased by 129%. During the same period the cost of living has increased by 40%. Even throughout the economic difficulties of the past two years, the Government has done its best to prioritise social welfare. The 2008 budget provided for increases of between 3% and 3.8% in the basic payment rates at a time when inflation for 2009 was expected to be 2.5%. In reality, prices have dropped considerably this year. By October 2009, prices, as measured by the consumer price index, had fallen by 6.5% and are now forecast to drop by an average of 4.4% during 2009.

I appreciate it is important to consider not simply the overall change in the consumer price index but also the impact that this may have on different groups. A technical analysis carried out by the Department of Finance suggests that between October 2008 and October 2009 the consumer price index fell by approximately 3.25% for retired households, 5.75% for unemployed households and 7.5% for working households. Prices are falling by approximately 7.5% for the highest income groups and approximately 4% for the lowest. Therefore, while decreases in the cost of items such as mortgages and cars would naturally have had a greater impact on higher income families, the overall cost of living has also dropped for low income households in general. Significantly lower prices exist and the result is there is an opportunity to maintain people's spending power despite the reduction in welfare payments.

Consumer prices are back to February 2007 levels. However, after the 2010 budget the lowest weekly rate of payment for those aged between 25 and 66 years will be €10 higher than in 2007. Therefore, even after the budget changes we will achieve the commitment in the national action plan against poverty to maintain the real value of the lowest social welfare rate in 2007 terms. The consumer price index is expected to fall by another 0.8% in 2010.

The Government appreciates that reductions in rates will be difficult for people but we also know that if action is not taken now we put social welfare payments at greater risk in future. We have also been conscious of the need to avoid disincentives for people to move from welfare to work. At present, when basic welfare rates and secondary benefits such as the rent and mortgage interest supplements are taken into account, some families are financially better off on welfare than in low income employment. Long-term dependency on welfare is not good for these parents or for their children. The changes in welfare rates being made today will address some of these disincentives.

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