The limits of the possible…Child Benefit July 20, 2010
Posted by WorldbyStorm in Economy, Irish Politics.trackback
Interesting to read in the Irish Times that plans to tax or means-test child benefit have been all but shelved.
The reasons?
Officials say there are significant problems in, for example, seeking to tax cohabiting couples with children. While the Revenue Commissioners have a database of married couples to use for assessing tax, it has no such data on cohabiting couples.
“There is no way of accurately getting this information so as to ensure all cohabiting couples pay tax on their child benefit,” records state.
Similarly, in the case of divorce or separation, officials state it would be difficult to determine who would be liable to pay tax on child benefit.
If tax on child benefit was not applied equally, officials warn that there could be constitutional difficulties if married people were treated worse than cohabiting couples.
And…
Even if an equitable way to tax child benefit was identified, department officials say it would be problematic to ensure people would be treated fairly. If the benefit was taxed, it would likely be based on a person’s income for the previous year. Such a system would not take account of current-year income.
“If a person was unemployed in the year after assessment it may not be fair to reduce their child benefit,” according to department records.
One wonders though whether it would be possible to have a supplement through welfare when one signed on thereby defraying the hit on those who were made unemployed and given CB on the basis of their previous years income? Granted that would ‘split’ the provision of CB, at least in that circumstance. And I’m sure there are other workarounds.
Anyway that’s probably moot, taxation is out… at least according to them. What then of means testing?
The Government would face a similar set of administrative and policy difficulties if it opted to means-test child benefit instead of taxing it, according to officials.
The dilemma of whether to measure net or gross income is one obstacle raised. While gross income is simpler and more transparent, officials say net income would provide “a more accurate indicator how well-off a household is in practice”.
Any system of means-testing would need to be responsive to changes in circumstances, such as reductions in income, unemployment, or changes in the household arising from separation or divorce.
In addition, an audit and control system would need to be put in place. This would have to limit the possibility of under-declaration of income and prevent fraud.
And…
Another obstacle with means-testing is the cost of administrative and information technology. Such a system would involve significant costs and require “significant changes to IT systems . . . to deal with the processing of changes in income and possible under or overpayment of child benefit”.
Hmmmm…
Documents also note the dilemma of who to means-test and the lack of data for the overall household income for cohabiting couples. “The concept of the taxable unit is different to the concept of the household used in the social welfare system,” documents state.
Which last point is interesting because clearly there is a means of differentiating (whether one likes it or not) between ‘households’ and ‘taxable units’ in the two different systems – leading me back to my point about taxation.
As it happens, and this is probably no surprise, my own chosen approach would be one of universal provision of benefit taxed according to income, but I worry about stories like this, because it seems to me that a third and much less attractive option presents itself on the political horizon, the gradual removal of child benefit (perhaps in a way and across timescales similar to those we see with mortgage interest relief) and the ultimate provision of it through social welfare – or alternatively the granting of a tax relief equal to CB which ultimately will be whittled down.
Interestingly enough if we look back at a suggestion from Colm McCarthy this time last year in the Irish Times we see that latter course presented in outline…
He also suggested that, instead of taxing or means-test child benefit, the best approach might be to cut the basic rate from €166 per child per month to €136. Social welfare payments could be reduced by 5 per cent because of the decline in the inflation rate and still retain the same value as in Summer 2008.
Given that CB was cut by €16 per month at the last budget bringing it to €150 plenty of scope there for McCarthy’s proposal to come into effect. That such a flat measure impacts on all but not equally appears not to trouble him at all.
But more broadly, perhaps this points to constraints of both a practical and a political nature in altering tranches of social policy and expenditure. More on that thought soon.
I seem to remember writing here before that from information I picked up from working in social security, means-testing a previously universal benefit is liable to cost a great deal more than it can save. Still, precisely by being the sort of thing that can be demanded and not implemented, its serves a certain purpose.
You did indeed, and you are proven entirely correct. And I think you’re right that it serves a purpose.
With the new Civil partnership Law in force, the problem of not having a database of cohabiting couples is likely to evaporate -
Although… presumably not entirely.
“ With the new Civil partnership Law in force, the problem of not having a database of cohabiting couples is likely to evaporate”
No, there won’t be a database following that Part of the new Act that deals with cohabitants being commenced (as the jargon has it).
The provisions on cohabitants do not provide for the registration in any systematic way of cohabitants.
The kind of thing the Act deals with regarding cohabitants is that it permits a person who is a cohabitant to go to court to get orders on payments against the person with whom they are or were cohabiting, or to apply for rights to the estate of their dead cohabiting partner (as in “certain rights”; I don’t know exactly what they are or what conditions apply), and for things like having the right to continue a tenancy of a rented home on the death of an unmarried and, em, un-civilly partnered partner who was the legal tenant. It also creates rules about a “cohabitants prenuptial agreement” is to be treated by the courts if the relationship breaks down.
Do they not have to register their relationship to get the benefits of the Act? Or does it apply retroactively?
Tim Johnston: “Do they not have to register their relationship to get the benefits of the Act? ”
No.
When you ask “Do they not have to register…?”, I think you may be mixing up two different “theys” that the Act applies to.
In its passage through the Dáil, the Civil Partnership Bill acquired a shiny new name which points up the fact that it is essentially two pieces of legislation bolted together: “The Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2009″.
The largest chunk of it establishes a new legal, sub-marriage entity called “civil partnership”, available only to same-sex couples, and which requires a same-sex couple to register with the State before it exists for that couple.
The Part 15 of the Act (sections 171–207) establishes new rights and responsibilities for cohabiting couples (both single sex and mixed sex). Those rights and responsibilities need to be exercised through the courts, and they arise from “facts on the ground” about the relationship, not from registering it in any official way.
WbS
You miss the essential point about child benefit … its income for the child, not the parent. It may be paid via the mother, but in essence its the childs money to be used for their benefit and that alone.
You might as well advocate applying benefit-in-kind to the Early Childcare & Education Scheme (worth a lot more in equivalent cash terms than CB) or taxing any of the other myriad of both cash and non-cash benefits that are paid by the State to children via their parents.
…
Tim
On the civil partnership thing leading to a database of cohabiting couples. The possibility that lots of people would lose entitlement to welfare benefits will ensure that this will not lead to a definitive register of shacked-up couples. Gaining some inheritance rights would not be sufficient carrot for potentially losing the lone parent allowance, their medical card, a maintenance grant for a college-age child, or a waiver on domestic charges. Whether the recipients of those benefits should be gaming the system in that way is another matter, but the point is that civil partnership will not be applied for universally because too many people will have too much to lose.
Bartley, not sure how you arrive at that conclusion that I’ve missed that. I’m dealing above with the debate in the terms it was framed by the IT piece and by the RC analysis. Perhaps you’re asking me to write posts on your behalf? Sorry, can’t do that, for that you must set up your own blog.
But given that you mention the essence of the matter, the payment is of course [nominally] to children, the reality is as you and I both know that this is a transfer to families. That’s what it is, what it was and what it will continue to be. I’ve stated my position on this which is that I’m in favour of universal payments of such benefits with taxation through progressive income tax in order to ensure fairness in the system based on ability to pay.
I’m absolutely not in favour of means-testing and I’m very very dubious about direct taxation of CB. If forced to choose I’d go with the latter but I think it’s bad policy.