Thursday, 30 April 2009
Social Welfare Benefits.
Question 1: To ask the Minister for Social and Family Affairs her plans to alter eligibility for child benefit; if it is intended to tax or means test the payment; and if she will make a statement on the matter. [17300/09]
As Deputies will be aware, the rates of child benefit have increased significantly since 2001, having trebled for the first two children and increased by over 185% for the third and subsequent children. Partly as a result of this and partly as a result of an increase in the number of eligible children, overall expenditure on child benefit grew from just under £760 million - the equivalent of €965 million - in 2001 to nearly €2.5 billion in 2008.
The Government is proud to have been able to direct such substantial increases in financial support to all Irish families in recent years. However, given the scale of the current economic crisis, it is necessary to address all aspects of the public finances in order to avoid excessive borrowing and ensure that fairness exists in the allocation of resources. It was in this context that the Minister for Finance announced in the supplementary budget the Government's intention to subject child benefit to income tax or to means test it from 2010.
The issues concerning which approach to adopt are considerable. I understand the Commission on Taxation is considering the issues underlying the possible taxation of child benefit. Its deliberations will inform the Government's final decision on how to proceed. The Department has advised the commission of the practical issues involved in taxation of child benefit.
The alternative approach of means testing the almost 600,000 families in receipt of child benefit would be administratively cumbersome and costly. Difficulties would have to be overcome with regard to the appropriate treatment of different types of income, establishing the composition of the household and considering how income is distributed within the household.
Careful consideration also needs to be given to the likely consequences of both approaches. For example, any option to tax or means test child benefit could result in disincentives to take up employment and lead to a reduction in participation levels because it would raise the amount of wages required to replace the level of welfare previously received. It could also lead to a depression of activity levels whereby people would attempt to stay below the different tax thresholds by reducing hours worked or job sharing. Any possible inconsistency of treatment as between cohabiting and married couples also needs to be considered. In addition, the implications for low-income households must be examined carefully, for example, in cases where income from child benefit would bring such households over the thresholds for liability to tax. The Department, together with the Department of Finance and the Revenue Commissioners, will be giving the matter careful consideration over the coming months in anticipation of the report by the Commission on Taxation.
Since 1944, child benefit has been a key instrument in child income support policy, its main objectives being to support families in the costs of rearing children and to alleviate poverty. I assure the House that a decision on how best to proceed will not be taken lightly by the Government.
I thank the Minister for her reply. I suppose it summarises the thoughts of Government but not the consequences of what it intends to do.
I shall put to the Minister an example I received today from a constituent. Her family has lost €8,000 in real terms annually because of the public service levies. She has four children aged under five and has lost an additional €4,000 through the abolition of the early child care supplement. Her basic question concerns how we value children and how we consider the actual burden - a word I do not like to use - placed on families when they have children and the responsibilities that follow.
In her response the Minister briefly mentioned the issue of disincentives which would be my biggest concern if either a tax or means testing were to be introduced There are already several poverty traps in the social welfare system which create disincentives for people to take up employment if such employment exists. First, how great is the Minister's concern that introducing means testing or a tax might create the greatest of all poverty traps for people with families? Second, has any thought been given to the idea of having tax credits for families with children if either of these schemes is to be introduced? A constituent said to me this week that in our taxation system her bins are valued more than her children. She can get a tax credit for her bin but not for her children. When one puts it that way one has to wonder how we value children.
The real case the Deputy outlined is a particularly difficult one for that family. Notwithstanding that the mother will get one year's free preschooling for each of her children, there is a considerable income loss for her and I appreciate that. We would be very conscious of that in whatever decisions we take in the next budget, bearing in mind what has happened in this one. The two measures will have to be seen with regard to how they impact on families.
The disincentive effect is very real when one looks to try to improve social welfare in any way. We have had other examples and there have been letters to the paper that everybody has probably seen, concerning a family with four children. When they listed all they were entitled to on welfare they were doing better than they would be at work. That should never be the case.
The family income supplement is there to support people but there would not be much point in taking with the one hand to give back with the other, all coming from a social welfare payment designed to support people with children. This is one of the issues we shall consider because it would be very wrong that somebody on social welfare should have a greater incentive to stay that way compared to the person on low income who is actually working. These are all issues we must thrash out in respect of future policy in respect of child benefit.
I asked the Minister to be cognisant of this but she gave the example herself so she is aware of the situation. That makes me wonder why this is being driven so hard. If everyone in the House were to add them up we would have thousands of examples of people who are better off remaining on social welfare. I have a real concern that if we go down the road proposed by the Government in respect of child benefit we will create even more examples and will force people, especially those with a number of children, to remain in unemployment rather than seek work. I ask the Minister to impress that fact on the Minister for Finance.
I certainly will. There are many issues relating to child benefit. It has been a universal payment for a very long time. There were some years during which the tax credit given for children was reduced on account of benefit and so at one stage there was a link between tax and child benefit but it was eased out. There are people who depend on child benefit and even those who do not depend on it to provide basics for their children use it for them, perhaps for extra activities, or whatever. I am conscious that is the case. However, it is costing us €2.5 billion and that is why we have had to look at all the schemes and every element of the social welfare budget, particularly at a time when people are taking drops in their income in the private sector. I fully accept the point that we must ensure we do not create any further disincentives. However, let everybody be warned that as soon as we try to do anything with the current entitlements under social welfare opposition voices inside and outside the House will be the very ones to say not to touch it.
I know, but it makes life very difficult when one is trying to find a balance when people who are not dependent on social welfare are taking drops in their income. We must ensure we do not have a disincentive for them to go on social welfare and be better off there. That will be the overall principle but it is too early to say what will happen in its regard in the future. There are considerable complications attached to either taxing or means testing, regardless of the policy decision attached.