independent

Sunday 20 April 2014

Squeezed middle-income families will 'suffer most' under new child-benefit plan

Joan Burton

HIGH earners will suffer less than middle-income families under proposed changes to child benefit, an expert report has found.

Squeezed middle-income families will suffer "the most significant losses" under the proposed changes, the report says.

Social Protection Minister Joan Burton is bringing the report on child benefit – which has been obtained by the Irish Independent – to the Cabinet today and it will be published tomorrow.

Read the full report here

The expert group puts the taxing of child benefit on the table for the first time, with savings of up to €345m projected.

The report says child benefit should remain a universal payment and leaves the Government with two options: taxation of the benefit or a two-tier payment with a top-up for families on low incomes.

Taxation

The taxation of child benefit would hit the parents of 70pc of the 1.1 million children in the country.

Some 400,000 families in total would face being taxed on their child benefit.

Four out of 10 parents would lose out under a two-tier system, as they would only receive a reduced child payment.

Whichever model is taken would see middle-income families being hit hard.

Taxation of child benefit would see the payment reduced by 20pc or 41pc, in line with the income tax rates.

The two-tier model in the report uses the example of a basic payment of €108 a month and a top-up payment of up to €165 a month, dependant upon income levels.

The reason behind this combined figure being higher than existing child benefit rates is because the two-tier payment would replace not just child benefit, but also other child support payments, including Family Income Supplement and Qualified Child Increases.

And the group says it would be up to the Government to decide upon the actual rate to be paid.

The report was drawn up before the Coalition cut child benefit from €140 to €130 in the Budget.

The report says more than half a million families would continue to receive a universal payment

"About 338,000 families would benefit from the top-up payment – that is, 61pc of families with children," the report says.

Under the taxation model, all families "would experience a loss of disposable weekly income".

Lower and middle-income families would experience "the most significant losses" but the losses for the highest income households "would not be as significant".

Under the tiered system, there would be gains for low-income families – particularly the very poorest.

But for other families, there would be losses, "particularly" for middle-income families, while the loss for the highest income families "are not as significant".

Assessing the reforms, the report finds that middle-income families would be hit the worst by any changes.

"Either option would mean that middle to upper income (households) would on average experience losses in their weekly disposable income, with the most significant losses being experienced by those in the middle income (households), which is where most households with children are located in the income distribution."

It added: "For those in the lowest income (households), there would be, on average, gains in the weekly disposable income under the two-tier CIS (Child Income Support) payment approach, particularly for the lowest income (household).

"In contrast, under the taxation-of-child-benefit approach, the lowest income (households) would experience on average a loss to their disposable weekly income."

The proposals come as a new report found levels of child poverty have worsened since December's Budget.

The report by the Children's Rights Alliance gave the Government an 'F' grade in child poverty and said the situation was getting worse.

The organisation was critical of the child benefit report's proposals, with a spokesperson saying families were still coming to terms with the cuts to income as a result of last December's Budget.

Irish Independent

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