I know I should address you as Minister, but I’m going to be a bit familiar, because I have an idea I want to share with you.
I’m putting this idea forward as a layman, entirely unencumbered by all the wisdom and years of experience that you’re surrounded with in your Department of Social Protection. I’m a bit slow, so it will take me this column and next week to spell out my idea in full.
Patience isn’t your strongest virtue, Joan, so bear with me! Despite (or maybe because of) my lack of professional expertise, I’ve been at the receiving end of civil service wisdom over the years. I’ve found from time to time that they’re much better at telling you why something shouldn’t be done than they are at telling you how to do it. In fact, I suspect that’s the reason why you’ve made so little headway so far on something you want to do, and that’s a meaningful reform of the child benefit system.
For several years now you’ve been told by every expert under the sun that taxation of child benefit, though it might be fair, isn’t doable because computer systems can’t be made to talk to each other. And means testing, though it might also be fair, would cost too much.
If we can believe all we read in the papers, the best the system might be able to come up with is some mechanism that might enable rich people to “voluntarily” relinquish their child benefit.
When I first heard that, I didn’t think it involved any reform at all. After all, if rich people don’t want child benefit, they don’t apply for it, right? Then when I looked into it, I remembered that some years ago the system had been changed. People don’t have to claim child benefit any more — nowadays, when they register the birth of their baby, your department helpfully initiates the claim. All they have to do is sign the letter you send them and supply their bank details. I guess in future you’ll have to change that letter to include a little box they can tick if they don’t want child benefit.
But — and you can put this down to blind unthinking prejudice on my part, if you like — rich people don’t get rich by turning down money you’re prepared to offer them free gratis. You’re not going to be overwhelmed by the number of ticked little boxes you get in the post.
So, here’s my big idea, minister, the only sure fire way to reform the system, when all other approaches have failed. It’s a bit of a “big bang”, and it might take a year to implement. But I promise you, when people get it, they’ll buy into it. In the immediate term, you should save some money next year anyway, because of last year’s budget announcement that child benefit will be the same for all children from next year.
That’ll save you €20 a month by my reckoning for every third child in the country. And you’re due to save a few extra bob on twins and triplets from now on — a bit mean, maybe, but at least it might mean the Troika won’t be demanding immediate savings next year. That will give you a bit of time to implement my big idea. So here it is.
Scrap the system. Start again. Gather up all the money that the State spends on the rearing of our children, and divide it up in a new and fairer way. Introduce a new, graduated payment (targeted so it can do the most good), and make everyone apply for it. Make it clear that child benefit will disappear on such and such a date, and allow everyone enough time to apply for the new payment. (A bit like Saorview.) When people are applying, they will need to supply their tax details, so that the system (at a glance) will be able to establish taxable income. This new payment will apply to every child. But the basic payment will be smaller, with higher payments kicking in for children of lower income families. (You’ll be able to advise every family in advance how much they will be entitled to, and if they think you haven’t been fair they can supply more financial data to make the case for a higher payment) And because you’ll have tax data for every family applying, you can make it clear from the beginning that the new payment may be regarded as taxable income.
But the really big idea is to stop thinking about child benefit in isolation. Let’s start instead by thinking about all the different ways we contribute to the rearing of children. Let’s apply a few different tests — like, what do want to achieve for all that investment. And let’s look in a much broader way about how we can do it — with better outcomes. And save a few bob in the process.
That will be the basis of next week’s column. But here’s a thought to start off with. I’m indebted to the independent economist Ronan Lyons, who writes about his subject in a way that lay people can follow. On his website, ronanlyons.com, he has some fascinating data about how income is distributed in Ireland.
And he makes the important point that even though our tax system is progressive, it is totally distorted by, on the one hand, the amount of tax that poorer people have to pay in terms of VAT, and on the other by the amount of transfers from the State that richer people get. And one of the biggest transfers is universal, non-graduated, child benefit.)
HE says (I hope I don’t misquote him by shortening him) “The system is … extremely progressive, with the tax rate on wealthiest households (40%) more than twice that on average households (16%) … But the system is also hugely regressive. Because poorer households have to spend all their income (and then some), and all that spending is liable for VAT, their effective tax rate surpasses all other income groups in the bottom half of the income distribution.”
If you want to address that, you have to look at how poorer families are supported in some of the fundamentals, like the rearing of children. And you have to be honest about the degree to which we are supporting richer families who don’t need it.
At the moment, you spend within your department around €2.7bn on child related payments (including maternity benefit). Give or take a few bob, that’s around €200 for every child in Ireland for every month of the year (child benefit accounts for around €140 of that). And that’s only the start of it. Education, Health and Children spend a lot more.
Are you getting bang for that buck? Are the taxpayers? More importantly, are the children of Ireland getting the return they deserve? If we want the answers to all those questions to be yes, we need to be willing to debate new ideas.
I’ll tell you a few more of them next week.
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