Cut in child benefit to hit all after new U-turn
Families will get €55 less after Lenihan means-test climbdown
LOW-income families will bear the brunt of child benefit cuts following another embarrassing Government U-turn.
Instead of means testing child payments as it promised in the Budget, the coalition has now discovered it has no option but to bring in a flat-rate reduction.
It is understood major legal obstacles arose over Finance Minister Brian Lenihan's plan to tax the benefits.
Proceeding with a 10pc flat cut in the rate will mean a drop from €166 to €150 a month for each of the first two children, and from €203 to around €180 for each subsequent child.
For a low-income familywith three children that would mean a reduction of €55 a month and would represent a substantial cut in disposable income.
The decision will further inflame anger at the Government and lead to claims that the most financially vulnerable are bearing an unequal share of the burden.
The Department of Finance last night confirmed it was aware of "legal issues" with both taxing and means-testing of child benefit payments.
However, the Irish Independent has learned the Government will be forced to abandon its plans altogether because of insurmountable legal and logistical difficulties.
Government officials have spent weeks trying to find an alternative to introducing a flat rate cut for all, but to no avail.
One problem is that the Constitution guarantees the State will support families, which is taken to mean all families alike.
Mr Lenihan desperately needs to slash the Government's €2.5bn bill for child benefit payments, which has more than doubled since 2001 when major increases were ushered in by then-Finance Minister Charlie McCreevy to compensate for inadequate child care facilities.
The Government's economic woes deepened further yesterday after the European Commission predicted the economy will shrink by 9pc this year.
Ireland will have the biggest budget gap in Europe with a deficit of 12pc of GDP this year, rising to 15.6pc in 2010. It will also have one of the highest unemployment rates in the EU.
Mr Lenihan clearly signalled in the Budget that the cost of child benefit payment would have to be cut.
But senior civil servants have said that they cannot apply a means test to the universal payment because of the avalanche of work it would generate.
There are 600,000 families and 1.15 million children in receipt of child benefit -- and the paperwork involved in setting an income threshold and checking claims would be "immense".
There are also concerns that legal difficulties would arise with any difference in the treatment of cohabitees, separated and married couples.
The payment may not be able to be taxed either -- because it has been legally regarded as the income of the child.
Labour spokeswoman on Finance Joan Burton last night said the Government could never have delivered on its promise to tax child benefit.
"Means-testing is horrendously expensive and potentially extremely difficult to administer," she told the Irish Independent.