THE taxing of child benefit is on the cards for the first time after an expert report recommended it as one of the “most feasible options for change”.
The move could see families lose up to €53 of the €130 monthly payment per child.
Up to 400,000 parents of nearly 700,000 children will be hit by the change if the Government goes ahead with the plan outlined in the long-awaited Mangan Report.
The report, obtained by the Irish Independent, says child benefit should remain a universal payment and leaves the Government with two options – taxation of the benefit or a twotier payment with a top-up for families on low incomes.
“Having considered the various options the group concluded that the taxation of child benefit and the two-tier CIS payment were the two most feasible options for change,” the report says.
Taxation of child benefit would see the payment reduced by 20pc or 41pc, in line with the tax rates.
The report revealed that a family earning €35,000 with one child would lose €336 per year. A family with four children on €60,000 per year would lose €2,755. A family on €100,000 per year with three children would lose around €2,000.
The two-tier model means everyone would get a basic payment, lower than the current rate, with the families most in need getting a top-up.
The recommendations of the Advisory Group on Tax and Social Welfare say there is “no one perfect method” of targeting child income support payments but the group concluded the “preferable method” is the two-tier payment.
Yet, the report dismisses means-testing as too cumbersome, so it’s not exactly clear how the eligibility for the twotier system would be determined.
Showing the difficulties, the report says the changeover to the two-tier payment “need not occur in one year but could be implemented over a number of years”.
As a result, there was division within the expert group, with some members believing “taxation of child benefit remains an attractive option” as it would clearly be easier to implement.
“In particular, the information available on household incomes in Revenue databases is impressive.
“In addition, the degree of matching DSP [Department of Social Protection] data from the child benefit file with Revenue data on households (in the order of 87pc) indicates that taxation of child benefit might be less technically difficult than previously thought,” the report says.
The report adds that the Coalition can save up to €345m by going down the taxation route. But the expert group, chaired by senior public servant Ita Mangan, warns middleincome families will be hardest hit by the taxing of child benefit.
The taxation of child benefit would hit the parents of 70pc of all the 1.1 million children in the country. The report, due to be published next week, has blown away the previous official line that it was not possible to tax the €2bn spent per year on child benefit.
Families taxed at the higher 41pc rate would lose €53 per month for each child.
The tax on child benefit payments would be deducted directly at source by the Department of Social Protection.
“The computer software required is relatively simple and would provide real-time accurate tax deduction,” the report says.
It add that there would be difficulties with measuring the`income of single parents, but doesn’t see this as a major hurdle.
However, the report warns that the actual number affected by the taxing of child benefit would turn out to be even higher than 393,500 parents. This is because some people who were currently outside the tax net would be liable for income tax if their child benefit were included.
Under the proposed new taxation system, child-benefit payments would be treated the same as wages for tax purposes.
There would be steep cuts for most families who would be hit with a rate of either 21pc or 41pc tax on their previously tax-free child benefit payments.
Families suffered an acrossthe- board cut of €10 in the last Budget.
Social Protection Minister Joan Burton has repeatedly spoken about her desire to tax the child benefit given to parents earning more than €100,000.
Ms Burton also warned a flat tax on child benefit at marginal rates would reduce the payment for parents far more than any cut to date. She suggested if it is taxed, it would be at lower rates than income tax.
The long-awaited report has been completed for almost a year, but has been kept under wraps.