Proposed Child Benefit Changes Will Involve Means Testing

The Child Benefit system in Ireland is going to be changing and the total amount spent on it will be reduced over the next few years. There has been talk in the past of taxing Child Benefit or means testing it – but a report produced this week has recommended a  two tier system of Child Benefit with a means tested component. The suggested changes also involve the ending of Family Income Supplement.

The report from the Advisory Group on Tax and Social Welfare looks at several options for changing Child Benefits or Child Income Supports in Ireland with the aim of reducing the total spend and at the same time targeting cuts on the better off  households . The report’s preferred option is a lower flat rate Child Benefit topped up with a means tested payment.

The amounts proposed are based on figures from 2010/2011 – so they could be changed .  They were calculated when the child benefit was €140 a month for the first child and are not the final figures .

A flat weekly rate of universal child benefit for all households of €25 is proposed with a maximum weekly “second tier” top up of  €38 which is reduced as household income rises.  These changes would also mean that FIS Family Income Supplement) would be abolished  – with the new version of child benefit compensating in some cases but not all. The payments included in welfare benefits for children (Qualifying Child Allowance) would be replaced bythese new version of Child Benefit payments.

In the examples given in the report a household on supplementary welfare  would get the full amount of Child Income Supports – i.e €43 a week per child (equivalent to €186.33 a month)  . This would be in place of the existing child benefit ( €140 ) and the compenent of supplementary welfare paid for the children (129.13) . So – they would see their overall income rise by €3.87 a month for each child.

At the other end of the scale – a household earning €100k a year would get just the €25 a week child income Support (equivalent to €108.33 a month)  instead of the €140  per month) . So -they would see their income fall by €31.67 a month for each child.

The income threshold suggested is €25000 gross. Any household with income below this level would get the basic €25 plus the full 2nd tier of €38  a week per child.
One household income goes above €25000 – then the 2nd tier payment is reduced by 20% of the “excess income” .
For example – A household with 1 child and an annual  income of €30000.
The income is  €5000 above the threshold.
20% of €5000 is €1000
The max annual  2nd tier benefit of €38 a week is  €1976
Deducting the €1000 from this leaves  €976 a year or  €18.77 a week .
Total Child Income Support  = €25 + €18.77 = €43.77  which is  €189.67 a month.
BUT – any FIS they were getting will now be gone.

It is pretty complicated – and each individual case will have different outcomes depending on the number of children and  the amount of any FIS payments .

Overall – if this option is chosen it is expected to cut spending by just under €200 million a year.
The wealthiest households will only see a drop in income of  €31.67 a month per child.
The households relying on just social welfare will see small rise in income of  €3.87 a month per child.

Self employed people on moderate incomes  with children will see larger  rises if this change is implemented . This is because they currently can’t claim FIS but will benefit from the extra 2nd tier child benefits.
In an example in the report – a couple with 3 children and a self employment income of €27k would see a monthly rise in income of €365.66  (€121.88 a week).

The report also gives an example of a lone parent  earning €20000 a year with 1 child who is getting €1404 Fis a year also. Their income would fall by €1357.60 a year under the proposed system. (A drop of  €113.13 a month)

Under the proposed Child Benefit changes about 217,000 households would be above the threshold and would just qualify for the flat rate €25 per child a week.

According to the report – if this two tier model  was implemented it would result in the poorest 30% of families seeing a rise in disposable weekly income. Some families could see incomes rise by €50 a week – but these would be a minority .It would mean a fall in disposable income for the other 70% of  families  – with a few  experiencing falls of as much as €100 a week.

The extra 2nd tier of child benefit would be paid automatically to those households on supplementary welfare alone. All other households would have to apply for the extra child benefit and supply details of income. This could discourage some of the higher income households from bothering to apply – so the savings for the government could end up being bigger than expected.

If these changes are made it will be done in stages over 2 or 3 years – so we have that confusion to look forward to !

Taxation of Child Benefit was the second choice mentioned in this report – but there may be legal problems and system problems in implementing such a change.