It may prove hard to justify not cutting middle-income group

In Nov 2010 Eamon Gilmore insisted that his party in government would not cut child benefit for the wealthy, saying the way to target this group was higher taxes.

“You can devise all kinds of means testing arrangements which end up costing as much to administer as you’re actually going to save,” the Labour leader said.

“On the issue of people with additional income, you use the taxation system to make people who are very high earners pay a higher contribution.”

But ending the universal nature of child benefit — through taxing it or means testing recipients — has been on the Government’s agenda since coming into office. In a briefing document prepared by Department of Finance officials for the incoming minister in Mar 2011, Michael Noonan was told that child benefit payments for high-earners were difficult to justify.

“The development of a rebalanced and integrated child income support payment system providing for better targeting of resources at welfare-dependent and low-income families is necessary,” it said.

The IMF has also been heaping on the pressure to end the universal nature of the payment, which is made to 600,000 families regardless of income. The IMF mission chief for Ireland, Craig Beaumont, said in July that the payment should be targeted at poor families.

“Child benefits are universal. There is no means testing so all families qualify for child benefits. And the child benefit amount has risen very substantially in the last decade so it is quite an expensive part of the social welfare budget,” he said. “We are just laying out the option that you consider paying it to the families who are relatively less well-off and save quite substantial expenditures in the process.”

Of the €20.5bn to be spent on social protection this year, about 10% goes on child benefit.

Under the Comprehensive Expenditure Report 2012-14, Social Protection Minister Joan Burton has to cut €1bn over that timeframe, including €540m next year.

In last year’s budget, Ms Burton resisted any pressure for a general cut in the payment, instead reaching a compromise with Fine Gael where the higher rate for the third and subsequent child was reduced.

Ms Burton had always expressed a preference for taxing child benefit. During the summer she conceded this would not be possible for some years because computers at Revenue and her department did not talk to each other.

It was then reported that officials were devising a mechanism whereby wealthy parents could voluntarily surrender their entitlements to child benefit. She later denied initiating this measure.

Over the weekend, it emerged that an advisory group on tax and social welfare has come up with a new proposal which would see an overall cut in child benefit rates.

The savings made would not only go back to the exchequer but also be given as an extra payment to lower-income families. This would mean the benefit would technically remain universal — at a reduced rate of €100 per month per child — with an element of redistribution by compensating worse-off families.

Ministers have so far failed to indicate their positions on this proposal, with the exception of Simon Coveney who said it was “something we have to consider”.

The cut would likely lead to a major backlash among middle-income families beginning to feel pressure. Some of this could be avoided by introducing the cuts over a phased basis.

With the fifth year of austerity approaching, the upcoming budget will have to be about priorities. It could prove hard to justify putting families with relatively comfortable incomes at the top of the list when lower-income families need greater protection.