The Group’s first report examines child and family income support payments
The Minister for Social Protection, Joan Burton T.D. has today (20 February 2013) published the first report of the Advisory Group on Tax and Social Welfare on child and family income support payments.
Welcoming the publication of the report, Minister Burton said: “The importance of child and family income supports is underlined by the fact that in 2013 my Department will spend over €2.8 billion on supports to families and children through payments such as Child Benefit, the Family Income Supplement, qualified child increases on weekly social welfare payments, and the Back to School Clothing and Footwear Allowance. This accounts for around 14 per cent of expenditure on social protection.
I welcome the Group’s firm recommendation that the universal nature of Child Benefit be maintained – namely that payments are provided in respect of all children. Since becoming Minister for Social Protection, I have strongly defended the universality of Child Benefit because the State must value every child and support families. The fact that every family receives Child Benefit, regardless of their employment status, also ensures that there is not a disincentive to work. This report makes important recommendations on how Child Benefit could be maintained as a universal payment while reforming child and family income supports so as to better target those who need them most.”
The report of the Advisory Group was presented to the Minister for Social Protection in 2012 and was subsequently considered by a Ministerial Steering Group comprising Minister Burton, the Minister for Finance, the Minister for Public Expenditure and Reform and the Minister for Children and Youth Affairs.
Ms Ita Mangan, Chair of the Advisory Group, setting out the main conclusions of the Advisory Group’s report said: “The Advisory Group recommended that Child Benefit should continue to be paid on a universal basis. However, the Group felt it is necessary to better target support to low income families in order to reduce poverty and minimise labour market disincentives or improve incentives. In this regard, the Group examined the (i) taxation of child benefit and (ii) a ‘two-tier child income support payment’ proposal.”
Ms Mangan noted that while the Group concluded that there is no one perfect method to target child income support payments, there was a strong preference in the Group towards a two-tier child income support payment approach because of its potential to rationalise the overall child income support system while minimising work disincentives.
Under the two-tier payment approach, the Advisory Group suggests rebalancing and integrating child and family income support payments as follows:
- A universal first-tier payment in respect of all children, which would replace the current Child Benefit payment.
- A child income support supplement or second-tier payment for low-income families, which would replace the current Qualified Child Increases components on all Social Protection weekly payments and the Family Income Supplement (FIS).
In relation to the taxation of Child Benefit, Ms Mangan said: “Some members of the Group found that taxation of Child Benefit is an attractive option. However, the Group as a whole recognised that this option, being limited to Child Benefit alone, does not contribute to a better design of the overall child income support system and does not provide for a comprehensive approach to the system of payments supporting families with children.
Commenting on the next steps, Minister Burton said: “The report will contribute to the policy debate on proposals to reform the structure of child and family income support payments, including the balance between income supports and services, such as childcare. Further consideration of the issues involved is required, taking into account developments in terms of future discussions and the budgetary and fiscal situation. To this end and to ensure that the Advisory Group’s report is considered within the broader public debate on this issue, I am proposing that the report be considered by the Joint Oireachtas Committee on Social Protection as part of its future schedule.”
Minister Burton concluded by thanking Ms. Mangan and the members of the Advisory Group for their extensive work in producing this report. The Minister also acknowledged the organisations and individuals who had made submissions to the Advisory Group following the Group’s invitation for submissions in national newspapers at the outset of their work.
The report of the Advisory Group on Tax and Social Welfare on child and family income support payments is available on www.welfare.ie
Note for Editors
The Advisory Group on Tax and Social Welfare was established in line with commitments in the Programme for Government to address a number of specific issues around the interaction of the tax and social protection systems and to recommend cost-effective solutions as to how employment incentives can be improved and poverty reduced, particularly child poverty.
Advisory Group on Tax and Social Welfare Report on Child and Family Income Support
1. Why was the Advisory Group established and what are its working methods?
- The Advisory Group on Tax and Social Welfare was established in June 2011 in line with commitments contained in the Programme for Government.
- The aim of establishing the Group is to harness expert opinion and experience to examine a number of specific issues relating to the tax and welfare systems. These include making cost-effective proposals for improving employment incentives and achieving better poverty outcomes, particularly child poverty outcomes.
- The Group’s overall method of working is based on producing modular reports on the priority areas identified in the terms of reference.
2. Who is on the Group and how were they nominated?
- Members of the Group were nominated by the Minister and have expertise in economic and social policy and other relevant areas.
- The membership includes individuals from both within and outside the public sector. In line with a practical, problem-focused and evidence-orientated approach, they are appointed to the Group on the basis of their expertise and not as representatives of specific sectors.
- The Group is chaired by Ms. Ita Mangan, a barrister with considerable experience in public policy and legal and social affairs. A list of the members of the current membership is set out below.
- Ita Mangan, Chairman of the Advisory Group
- John Bohan, Department of Social Protection
- Gerry Harrahill, Office of the Revenue Commissioners
- Micheál Collins, Nevin Economic Research Institute
- John Conlon, Department of Public Expenditure and Reform
- Catherine Hazlett, Department of Children and Youth Affairs
- Paul Kealy, Department of Jobs, Enterprise and Innovation
- Geralyn McGarry, Citizens Information Board
- Aebhric McGibney, Dublin Chamber of Commerce
- Pat Mahon, Pricewaterhouse Coopers (PwC)
- Brenda McVeigh, Department of Finance
- Mary P. Murphy, Department of Sociology, National University of Ireland, Maynooth
- Brian Nolan, School of Applied Social Science in UCD
- Marie Sherlock, SIPTU
- John Sweeney, National Economic and Social Council
3. With regard to child and family income supports, what was the Advisory Group asked to do?
- The Advisory Group was asked to examine the issue of child and family income supports. In this regard the Group was asked to examine in particular Child Benefit, increases for qualified children and the Family Income Supplement payments.
- The Group was also asked to take into account the considerable level of analysis that has already taken place in relation to family and child income supports, which includes a range of reports that have considered structural reform of these payments. These include a Department of Social Protection value for money review of child income support payments published in November 2010.
- The terms of reference require that all of the Group’s work is carried out in the context of ensuring that the income support and tax systems provide good incentives to take up work and contribute to the reduction of poverty and child poverty in particular.
- The Group is also required to consider any proposals for change to existing arrangements in a cost-neutral or cost-reducing context.
4. What are the Advisory’s Groups recommendations relating to child and family income supports?
- The Group was unanimous in its view that the State should provide some income support for all children and targeted support to low-income families.
- The Group therefore determined that Child Benefit should continue to be paid on a universal basis. However, the Group felt it was necessary to better target support to low-income families in order to reduce poverty and minimise labour market disincentives or improve incentives.
- The Group concluded that there was no one perfect method of targeting child and family income support payments.
- The Group also concluded that the taxation of Child Benefit and a two-tier child income support payment were the two most feasible options for reform. The Group’s report contains a detailed impact assessment of both these options covering budgetary impact, poverty and incentives outcomes as well as the impact on “typical” households/families.
- While some members of the Group found that taxation of Child Benefit was an attractive option, it was recognised that the taxation of Child Benefit, being limited to only one of the child income support payments, would not contribute to a better design of the overall child and family income support system.
- There was a strong preference in the Group towards the two-tier child and family income support payment approach underpinned by the potential it would afford to rationalise the overall child income support system while minimising work disincentives, allowing for better targeting of support and at same time allowing flexibility to future governments to amend (either separately or together) the components of the payment.
5. The Advisory Group expressed a preference for a two-tier child and family income support payment approach. How would this two-tier payment work?
- Under the two-tier payment approach, child and family income support payments would be rebalanced and integrated as follows:
- A universal tier in respect of all children, which would replace the current Child Benefit payment.
- A child income support supplement or second tier payment, which would replace the current Qualified Child Increases components on all Social Protection schemes and the Family Income Supplement.
- This second tier selective payment would be available automatically to those in receipt of a means-tested primary social welfare payment (replacing Qualified Children Increases components on these payments).
- Where individuals with children were not in receipt of a means-tested primary social welfare payment (including those not on any social welfare scheme) or on FIS, they could apply for the second tier selective payment by submitting their application and satisfying a means test. This payment would replace FIS and also cover some families not currently eligible for FIS.
- The second tier payment would therefore be payable in respect of children in low/middle income families where the parents were not in receipt of a social assistance payment. For these families, the payment rate would be proportionally reduced as income increases.
- While the Group looked in detail at issues around the design and financial implications of a number of specific “packages” for the two-tier payment proposal, in terms of payment rates and thresholds, the Group emphasised that it was not endorsing a particular configuration for the two-tier payment as this is a matter for Government. However, the Group used a specific package in its report in a way that would illustrate the practical effects and operation of the payment, and how it might compare with the taxation approach.
- The Advisory Group report stated that the changeover to a two-tier child and family income support payment need not occur in one year but could be implemented over a transitional period of a number of years. Sufficient time would be required for the Department of Social Protection to implement operational measures so as to facilitate the delivery of the new payment.
6. What does the Advisory Group report say about the taxation of Child Benefit?
- In its examination of taxing Child Benefit, the Advisory Group identifies three options:
- Reduction in available tax credits of recipient (coding in), whereby tax credits for PAYE taxpayers would be restricted by the value of standard rate tax due on the Child Benefit paid and, to ensure higher rate tax in appropriate cases, reducing the Standard Rate Cut-Off Point by the amount of Child Benefit. Collection at source by the Department of Social Protection, whereby the Department would register as an employer and collect the tax due in the same way as the PAYE system.
- Final Liability levy, whereby there would be a non-refundable 20% levy at source of the payment with an exemption for social welfare recipients.
- None of these options would be ‘simple’ to administer for either Revenue or the Department of Social Protection and the Advisory Group’s report identifies pros and cons for these options. In particular significant ICT development would be necessary for both Revenue and the Department of Social Protection and this would have consequences for the lead-in time for implementation.
- Overall the Advisory Group did not favour the taxation approach because of the fact that it only addressed one payment in the overall structure and did not provide for a comprehensive approach to the system of payments supporting families with children.
- Taxation of Child Benefit is also subject to a number of legal questions. According to the Group’s report, the main legal issue relates to the requirement that cohabiting couples with children would not be treated more favourably than married couples with children. This could arise, for example, if the child benefit income was deemed to be the income of the income-earning spouse but could not be deemed to be the income of an income-earning cohabitee. The Group also noted that questions had been raised in relation to ownership of the Child Benefit payment and therefore who would be assessed for tax purposes.
7. What does the Advisory Group Report say about means-testing Child Benefit?
- Means-testing Child Benefit could mean that some families would not receive any child income support from the State. Therefore, the Group did not favour this approach as the Group was of the view that a universal child income support payment at some appropriate level should be retained.
- The Group also determined that while means-testing Child Benefit has potential to improve targeting of resources, it also would have considerable administrative consequences, as the scale of means-testing would be considerably greater than anything required by the current system (about 600,000 families).
- On a more general level this approach would only address one of the main income support payments and would have no benefit in terms of a better design of the overall child and family income support system.
8. What are the reporting arrangements between the Group and the Minister and what is the status of the Group’s recommendations?
- The Group’s role is to advise the Minister for Social Protection and the Government on the issues set out in its terms of reference.
- The Group’s overall method of working is based on producing modular reports on the priority areas identified in the terms of reference. In this regard the Group makes recommendations based upon available evidence and data and expert examination of the issues.
- When the Group’s modular reports are finalised, they are provided to the Minister by the Chair so that their findings and recommendations can be carefully considered by the Minister for Social Protection and other relevant Ministers.
- While the Government is not obliged to act on the findings of the Advisory Group, their reports will assist the Government in considering the appropriate direction of policy.
Download the report of the Advisory Group on Tax and Social Welfare on child and family income support payments (PDF; 756KB)