Taxing child benefit would rake in nearly €400m for the Exchequer — three times as much as is being raised by universal cuts to the allowance.
Finance Minister Michael Noonan has said there are “very well-established data arrangements” in place between Revenue and the Department of Social protection which could eventually be used to tax child benefit.
Data from Mr Noonan reveals €395m could be collected next year from families or parents in receipts of the allowance whose income would be assessed.
Current budget plans to cut payments by at least €10 for a child will generate €136m in funds.
The tax option emerged as Labour party chairman Colm Keaveney yesterday said state agencies and departments should be able to tax the allowance. He also suggested the Government row back on cuts to “alleviate the impact on low income families”.
However, ministers say legal, IT, and policy issues must be resolved before the benefit can be taxed.
Mr Noonan said this included clearly identifying payment recipients, their tax credits, and issues about the tax treatment of couples.
But he added: “I am advised that the estimated full year yield, based on projected 2013 incomes, could be of the order of €395m on a 2012 basis, if the child benefit were fully taxable as the income of the assessable person in joint assessment cases, and that no new tax threshold, exemption, allowance or personal reliefs would be introduced to offset some of the tax.”
The cost for child benefit is expected to be in the order of €2.1bn for nearly 600,000 families for 2012.
Joan Burton, the Social Protection Minister, favours taxing payments, but cites legal obstacles. Revenue are also busy preparing for the new property tax next year.
A tax-based system for child benefit could mean a cut of up to 20% (€26 per child) for over 250,000 families and up to 41% (€52) for another 138,000 families paying the top rate of income tax.
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