State faces legal quagmire over taxing of child benefit
THE cutting of child benefit could finally prove to be a fatal blow for this punch-drunk Government. An electorate fast running out of patience with the coalition will be sorely tested if it perceives a double unfairness whereby those who don't need it can continue to pocket the payment.
The Government has already indicated that it intends to make savings in this area, seven years after the doubling of child benefit helped to buy re-election for Fianna Fail in 2002.
The architect of that splurge was former Finance Minister Charlie McCreevy, whose largesse was used to cover up the fact that Ireland was being repeatedly criticised for having the worst state childcare supports in Europe.
But accelerations in child benefit only helped to drive cynical increases in charges by the private creche industry, safe in the knowledge that a dearth of places meant desperate parents were willing to pay virtually any price.
And some of those parents vitally needed paid childcare because the separate ind- ividualisation policies of Mr McCreevy had driven both parents out to work in the first place.
Now the Government has to make emergency savings across the board, and that means hitting child benefit. The fall-out could do it far worse damage than the mere collapse of national recovery talks, which was signalled by the trade union side yesterday.
The State's bill for child benefit is now running to €2.5bn a year, or close to 5pc of national spending. It cannot remain immune, and the Government will aim to trim it by at least 10pc by next year -- which would mean a saving to the Exchequer of €250m.
Finance Minister Brian Lenihan has privately admitted that the Budget 2010 will be much tougher even than the draconian measures he announced last month.
A flat cut to child benefit will be on the cards, despite Mr Lenihan's promises to instead tax or means test the payments.
Translated into individual payments, a cut of 10pc will mean the payment for the first two children falling from €166 to €150 each per month, and from €203 for each subsequent child to probably €180.
For a family of three, this would mean a total fall of €55 per month. For the lower paid, such a collapse in income will represent the difference been muddling through somehow and a total inability to make ends meet.
In his Budget speech early last month, Mr Lenihan said: "The Government does not think that it is fair to pay the same level of benefit irrespective of the level of income of the recipient. For that reason, the Government has decided that child benefit will be means tested or taxed in the Budget for next year."
But he has now discovered that means testing a benefit that is provided for more than 1.15 million children in 600,000 separate payments would result in near administrative collapse if all those families were forced to provide their entitlement by means of submitting P-60s and statements of earnings.
It has been suggested the screening could cost more than the cut would save.
Such a false economy was hinted at by Social Affairs Minister Mary Hanafin, who told the Dail last week that a means test would be "administratively cumbersome and costly".
If means testing is ruled out, that leaves only the taxing of the benefit. But here the legal advice is that any such decision could be tested in the courts, with plenty of case law to back up the doubters.
There is an argument that child benefit has already been legally regarded as the income of the child. Its tax emption on that basis would also partly stem from the growth of child benefit out of a former system of special children's tax allowances.
Another basis for regarding it as the income of a minor in their own right derives from a 1980 Supreme Court decision. Murphy v the Attorney General held that it was contrary to the Constitution for a married couple to pay more tax than two cohabitees with the same income -- and touched on the principles applying to child benefit.
A similar argument was heard in a 1989 Supreme Court decision entitled Hyland v Minister for Social Welfare.
Under any means test for child benefit, only the single income of an unmarried parent (who is a cohabitee) could be assessed. A married couple could therefore miss out in comparison, and this would be unconstitutional.
The Commission on Taxation is looking into the options of taxing the payment, but the legal issues have proved complex, not only because of the issue of a child's own entitlement, but also because of Article 41 of the Constitution which expressly guarantees to protect the family.
Furthermore, there is an interpretation that the State may be constitutionally barred from discriminating between rich and poor families in the limiting of child benefit through discriminatory tax -- whether at the standard rate (for poorer families) or the higher rate (for the rich).
The same Article states that the family is "the necessary basis of social order and indispensable to the welfare of the nation and the State".
- Senan Molony
