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Means testing Child Benefit? Well, if we’re going to have a debate a credible argument in favour might be useful… October 8, 2010

Posted by WorldbyStorm in Economy, Irish Politics, Uncategorized.
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… but you won’t find it in Jim Power’s curious contribution in the Irish Times yesterday. Jim Power is ‘chief economist with Friends First, a life insurance, pensions and investments company’. Now some of us will remember the submission of the insurance, pensions and investments industry to the Green Paper on Pensions in 2007. You will know the one, where they argued that pensions should not be mandatory…

Take it away the Irish Insurance Federation:

* We do not support the idea of mandatory pensions. The introduction of fully mandatory pensions would create more problems than it would solve. There would be a high degree of complexity involved and it would be very difficult if not impossible to design a regime which would be appropriate for all participants. In our opinion the better option is a reasonable basic State pension and voluntary provision on top of this.

* Why not mandatory? Because:
o Enhancing the “Pillar 1” State pension, as recommended, would go a long way towards providing an adequate retirement income for low- to middle-income earners; this in turn reinforces the idea that any additional pension provision – while it should be promoted and incentivised by the State – should remain voluntary;
o It represents an abdication of personal responsibility and it weakens the link between effort and reward;
o It removes personal choice;
o It enshrines the principle that citizens must be taken care of by the State from ‘Cradle to Grave’ and increases ‘Big Government’;
o It creates a dilemma regarding who should manage funds and may result in a lack of individual savers’ control over the management of their retirement funds.

So remember that as you read the following contribution from JP.

It can be summed up as follows:

There’s a massive economic crisis ‘ a situation of unprecedented and very deep crisis’.

Public expenditure is too much ‘The structurally unsustainable public finance situation is fundamentally due to the fact that it quite simply costs too much to run the country’.

We can’t afford child benefit… ‘universal child benefit is a structure that we simply cannot afford’.

I asked my son to look into it… but he’s none the wiser than me… ‘When he asked me how much we receive in child benefit, I had no idea because it goes straight into an account that will eventually be used to fund third-level education or marriage or whatever’.

I asked my mates and they’re no better… ‘I just conducted a straw poll of a few people I know with children on the level of child benefit, and none could tell me how much it is worth to them’.

Therefore if we don’t know what it is we don’t deserve it… er what?

‘While I recognise that this is not a significantly robust statistical sample, it does strike me that if somebody does not know how much they receive then they probably should not be getting it in the first place’.

WTF? This is what he considers to be a serious argument on this matter?

[on a tangent I have a perfectly formed Excel spreadsheet which I do my personal finances on. If you asked me how much I earn, after tax, a figure I look at frequently as I do my finances each week, I honestly couldn't tell you. It's no great sum let me tell you, but clearly I don't deserve it].

His use of statistics is astonishingly relaxed…

Figures in last year’s Commission on Taxation report showed that 65 per cent of families who benefit have an income between € 40,000 and € 100,000 and 15 per cent have an income in excess of € 100,000. On grounds of equity and efficiency, universal child benefit does not score very highly.

How precisely does he work that out?

If expenditure cuts are focused on people with a high marginal propensity to consume, as is the case with many recipients of social welfare, then such cuts are more damaging to the economy.

On the other hand if cuts are focused on those with a lower marginal propensity to consume, the economic impact of such cuts are less severe.

The marginal propensity to consume is lower on average for recipients of child benefit than for most other forms of social welfare, so it would be a less damaging way to proceed.

Three thoughts strike me. Firstly he surely won’t be using arguments about marginal propensity to consume as regards other cuts, whatever their impact on low earners. Secondly he ignores a well-developed body of literature that demonstrates that universal benefits are much more effective as a means of ameliorating issues such as child poverty than means tested ones. [link to relevant documentation two thirds of the way down the piece]This is in no small part due to a tendency for means tested benefits to dissuade take-up. Thirdly, why not the obvious solution to his problem and increase the tax rate marginally to take account of the benefits high earners will gain from child benefit. But no, perish that particular thought.

Because for all the talk of pain and solidarity what we’re seeing is the removal of the fairly tenuous and residual instruments of social solidarity. These may be symbolic, but they’re indications that we are all in this together, that the state isn’t merely an appendage to the economy, but that it is part of a broader social compact.

He concludes with the following unreferenced figures:

The cost of child benefit this year is estimated at €2.26 billion. Savings of at least €800 million could be achieved here. This of course would not be enough to bridge the gaping gap, but it would represent a start. Whatever way one looks at it, we will all end up paying more tax and getting less from government over the coming years, but we must have no sacred cows in this debate. Every tax and spending option should be given due consideration to identify the relatively better options.

The operative words being ‘due consideration’.

But oddly if we turn to a document from last year another guy called Jim Power, also – coincidentally, with Friends First had the following thoughts on child benefit…

Spending cuts which could be considered include:
• Some cut to child benefit costs – a basic cut of 20% would save the Exchequer €500 million per annum. Taxing these benefits would be fairer, but would be very difficult to engineer quickly enough.

And those lower paid workers whose marginal propensity to consume isn’t that much lower than those on welfare?

• A broadening of the tax base to increase contributions from tax exiles and lower paid workers. It is nice, but it is just not sustainable to have 50% of workers paying no income tax at all.

I find the glib tone of the ‘it is nice’ fairly revolting given the impacts of what is being discussed (I should add I also agree with the notion of bringing all workers into the income tax net, though I’d see this as a further gesture of social solidarity potentially alleviated by credits).

And what of the unemployed?

• Cutting the social welfare bill by 5% would save €1 billion in government spending.

Ah… what indeed, would appear to be the answer.

Meanwhile let’s consider his reading of the entrails of the housing sector last November, just for the craic, y’know…

“Against a background of excess supply and constrained demand, it appears likely that house prices will fall further over the coming year. It is difficult to measure price changes in an illiquid market but a further decline of up to 15% appears likely, before the market is likely to bottom out in the second half of 2010.”

Oh dear… better not show this to him…

Less welcome are three separate reports on the property market published this morning, which show that residential house prices continue to slide across the State.

Websites Myhome.ie and Daft.ie and property group Sherry FitzGerald have all published their latest analyses of house prices for the third quarter.

All three reports show the same broad trends, pointing to continued declines in price.

According to Myhome.ie, a property website owned by The Irish Times, prices nationally fell by 3.9 per cent in the third quarter.

The latest fall brings the total decline from the peak of the market in late 2006 to almost 32.4 per cent, according to Myhome.ie.

Daft.ie says prices fell by slightly less – 3.7 per cent – in the third quarter of the year on the previous quarter. It says prices nationally are now 37 per cent down from the peak recorded in 2007.

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Comments»

1. Dr. X - October 8, 2010

You’re making the mistake of responding rationally to these people.

I know from my own experience that you can make all the key points ’til your blue in the face – that means-testing is a false economy, that universality helps legitimise the benefit, et cetera – and all you get is the blank, ovine repetition of ‘oh, people like us don’t need it’.

‘People like us don’t need it’.

‘People like us don’t need it’.

‘People like us don’t need it’.

‘All glory to the Hypnotoad’.

Their position on child benefit is an emotional reaction driven by lesser or greater degrees of anxiety. They are afraid for the future, and in response to that they retreat into the illusion that their middle-class social status will keep them safe (and to prove they hold that status, they tell themselves they don’t need child benefit). They may yet find out the hard way just how wrong they are.

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LeftAtTheCross - October 8, 2010

Patience is required. Not with individuals, I don’t mean that. The time is not right. The middle class, as you rightly point out, still believes that everything will be alright for them, that the pain elsewhere will fix the problem. It is only with time that the middle class will fracture under the weight of the increasing attack on its lower rungs. For 30 years we have had the bourgeoisation of society, the we’re all middle class now mantra. But that game is over, new rules apply, the gates are being locked and not everyone who though they would be safe will make it into the lifeboat. Patience.

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Pope Epopt - October 8, 2010

Wise words there LATC. Large sections of the declasse middle class are beginning to loose their stake in the existing order. The size of the excluded grows.

I was reading Zizek (feck knows how to get those accents right) on the The Communist Hypothesis recently and he makes a cogent point that there will be no single revolutionary subject but:

…an explosive combination of different agents. What unites us is that, in contrast to the classic image of the proletariat who “have nothing to loose but their chains”, we are in danger of loosing everything

By everything, he means here the biological / ecological basis of existence and the enclosure of the genetic commons.

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LeftAtTheCross - October 8, 2010

Haven’t read much Zizek myself (the intro to a book on Rpbespierre was enough for me!) but that quote there is spot on for sure.

Meanwhile I’m following the Claiming Our Future crowd on Facebook and I see posts with subjects like “Can music and dance be weapons of peace?”.

FFS!

Bring it on, give us the National Government, batter us senseless, whatever it takes to shatter the concensus and provoke the wrath of the awakened masses. Or something like that.

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Pope Epopt - October 8, 2010

Zizek has improved in the last two books – On Violence and First as Tragedy, Then as Farce. and become less Lacanian and more concerned with current crisis.

I guess it’s a case of ideas who’s time has come becoming clearer. That being said, he reserves the right to contradict himself in a thoroughly Hegelian way.

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2. Garibaldy - October 8, 2010

The hypnotoad makes too infrequent appearances on the CLR. Good work Dr. X.

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Dr. X - October 8, 2010

Bow before the Hypnotoad, wretched Bolshevik!

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Garibaldy - October 8, 2010

The Hypnotoad will bow before the power of the proletariat.

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WorldbyStorm - October 8, 2010

This is all very exciting. ;)

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3. middle child - October 10, 2010

I really love his other books, not this one though..

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4. ejh - October 10, 2010

it does strike me that if somebody does not know how much they receive then they probably should not be getting it in the first place

Thi isn’t such a bad principle, actually. It might usefully be applied to wealthy people: if you don’t know how much you’ve got, you’ve got too much.

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WorldbyStorm - October 10, 2010

Brilliant. I should have seen that!

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5. Pensions… « The Cedar Lounge Revolution - October 14, 2011

[...] But why would that be? Hennigan seems to point the finger at the government, and also implicitly at the public sector [why else the continual focus on it], but as I’ve noted here before, you’ll find a reason much closer to the private sector, indeed just go consider the Pensions industry contribution to the Green Paper on Pensions during the… [...]

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6. Means testing… « The Cedar Lounge Revolution - December 13, 2012

[...] I’ve noted previously that means-testing is remarkably inefficient, that it generates distortions (particularly for those who fall above or below certain limits of income), that we already have a society wide means of assessing (albeit with some omissions) wealth in the form of the tax system and that in certain areas it can provide an obstacle to access – as with grants. [...]

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7. A little bit on pensions… « The Cedar Lounge Revolution - February 15, 2013

[...] its colleague in private sector representative organisations, the Irish Insurance Federation, in its submission to the Green Paper on Pensions in 2007 explicitly was against ideas such as ‘mandatory pensions’ for all [...]

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8. Pensions | The Cedar Lounge Revolution - April 22, 2013

[...] No apologies for pointing to this, their contribution to the Green Paper in 2007 some years back whi… [...]

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9. Pension plan? Chance would be a fine thing. And what of the end of the welfare state? | The Cedar Lounge Revolution - September 20, 2013

[…] arguably it’s already started. Remember the pensions and insurance industry and their contribution to the Green Paper in 2007? An unashamedly right of centre political and social vision was outlined […]

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