Change to allowance would hit middle-income families
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MIDDLE-income families are set for a financial body-blow, if the recommendations of the Commission on Taxation on child benefit are implemented.
The commission says the state payment should be taxed, with a tax credit given to lower-income families to make up for any impact from taxing it. A tax credit works by reducing the amount of your income that is subject to income tax.
At the moment, the Department of Social and Family Affairs pays €166 each for the first two children in a family, with the payment for the third child from €203.
But the 17-member commission decided these payments should be counted as income, as it was concerned that every family got the same amount of money, irrespective of whether they were paupers or millionaires.
However, the commission points out that other options, such as means-testing the payment, should also be looked at, as there are huge logistical difficulties in taxing child benefit.
At the moment, under law, the child benefit payment goes to the child. Taxing the benefit would require a change in the law, and either the mother or the father would have to be nominated to receive the benefit. If the mother was nominated, it would raise questions as to why the payment was not going to the father, the report says.
And in the case of separated couples, there is the question of which parent's income should be taxed.
Problems
Although it is not specifically stated in the report, the underlying thrust is that taxing child benefit may throw up more problems than it solves.
The report hints that means testing or cutting the benefit might be a better approach, but such recommendations are outside the terms of reference of the commission. Minister for Social and Family Affairs Mary Hanafin has said that there will be significant changes in the child benefit system.
The report of An Bord Snip Nua, the special group chaired by economist Colm McCarthy, recommended cutting child benefit to a standard rate of €136 a month, which would save €513m for the exchequer.
Any changes to child benefit will be controversial.
Already, some 11,000 parents and other concerned citizens have signed a petition against any change in the child benefit allowance. In both online and handwritten petitions, which are addressed to Taoiseach Brian Cowen, the families say that they oppose the introduction of means testing or taxation or reduction of the universal payment.
The petition was organised by a parents' group called Protest Against Child Unfriendly Budget which was founded in April after the supplementary budget.
And in the past few days, the National Women's Council of Ireland (NWCI) has also urged the Government not to cut, means test or tax the allowance. Some 45pc of NWCI members who responded in a survey said that any cut in child benefit would be a "financial disaster" for their families.
- Charlie Weston Personal Finance Editor
