Denis Naughten (Roscommon-South Leitrim, Fine Gael)
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Question 414: To ask the Minister for Social and Family Affairs her plans to means test child benefit; and if she will make a statement on the matter. [17740/09]

Mary Hanafin (Dún Laoghaire, Fianna Fail)
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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 £760,000,000 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 so as to avoid excessive borrowing and to ensure that fairness exists in the allocation of resources. It was in that context that the Minister for Finance announced in the Supplementary Budget the Government's intention to either subject child benefit to income tax or means-test it from 2010. The issues arising from which approach to adopt are considerable. I understand that the Commission on Taxation is considering the issues underlying the possible taxation of child benefit. Their 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.

In relation to the alternative approach, means testing the almost 600,000 families in receipt of Child Benefit would be administratively cumbersome and costly. Difficulties would have to be overcome in terms of 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 as 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 where people 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 need to 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 with the main objectives of supporting families in the costs of rearing children and the alleviation of poverty. I assure the House that a decision on how best to proceed will not be taken lightly by the Government.