Thursday, 22 November 2012

Is Cutting or Means Testing Child Benefit The First Step In Rebuilding the Irish Economy?

In this day and age, considering our country’s current economic climate, it is every parents worst nightmare – child benefit payments being cut or means tested. Unfortunately following numerous reports from the IMF and the Finance Minister’s advisory groups, this is an action that the Irish Government are highly considering despite strong protests from opposition politicians and social justice groups[i].

At present in Ireland, Irish parents receive €35 per week for their first two children, €37 per week for the third child and €40 per week for each subsequent child. Many parents will argue that this money is used to keep food on the table and the bills paid[ii], so surely the Irish Government can see that cutting or means testing such a vital family supplement is immoral and unfair.

As well as leaving many Irish families on the verge of poverty, cutting Child Benefit payments may back fire on the Government in an economic way. It makes logical sense – if a form of income is taken away from a family, something has got to suffer and since Irish families are suffering already, they are now depending on their Government more and more nowadays, this means the Irish Government will feel the blow also. This becomes easy to understand when it is looked at in the context of a cost/benefit analysis.

On the upfront, it may seem that altering the child benefit payment will ‘benefit’ the Government – they will save a reported €2 million annually[iii], this makes perfect economic sense right? Wrong. The Government have not considered the knock on effect that will occur. Once Child Benefit is cut or means tested, many people will not be able to provide the basic needs for their children, for example – food, childcare, new clothes, shoes and school books. This is one of the ‘costs’ of cutting Child Benefit. People will be left with no other choice only to seek help from the Government. The amount of people applying for supplements like ‘Family Income Support’ and ‘Back to School Allowance’ will rise and the Government will be back to square one – giving out money to a nation of struggling families.

The Government haven’t considered the cost of childcare in Ireland either, many Irish parents will find that without Child Benefit payments to fund childcare costs, it may not be worth their while working. This is another ‘cost’ associated with cutting the payment. If parents give up work and opt to stay at home with their children because they cannot afford childcare costs, then the Government is losing out on revenue in the form of tax from these people’s wages. And that shouldn’t be the governments only worry – as could be expected the ‘dole queues’ around Ireland will grow that little bit longer.

Another ‘cost’ of cutting or means testing Child Benefit which the government haven’t carefully considered from an economic perspective is the associated administrative cost of cutting or means testing the payment. The option to cut the payment would require a massive change to the existing system and in turn, this would create a need for ongoing staffing to maintain and insure the correct implementation of the new system. For example, if the Government were to introduce means testing, each family entitled to Child Benefit would need to submit their household and income data regularly. Since so many people in Ireland are being left go from work every day and others now work part time and a day here and there, there would need to be a first class system introduced so that if household income changed during the year the system would respond instantly[iv]. If the Government can afford to implement such a top class responsive system and the staff required, then perhaps they are not as hard up for money as we all think?

Cutting Child Benefit is not something that will result in the Governments amount of desire revenue. For example - should the government use the forecasted saving of €2 million a year from cutting Child Benefit in order to pay off only €1 billion of Ireland's total debt at the end of 2011, (€173 billion[v]) it would take almost five hundred years. So, surly saving Irish family from the stress and devastation of poverty is deemed as a more valid and moral option then cutting a payment that people depend on so heavily and realistically, a payment that has no substantial economic return.

This cost benefit analysis shows that ‘costs’ associated with cutting or means testing Child Benefit are greater than the ‘benefits’ in a 3:1 ratio.

Now, for the million dollar question – how can this situation be remedied? Suggesting a solution is almost impossible, there is no way to satisfy both the nation and the Governments need to save money.

Here are two suggestions – Firstly, ending payments for each family after a certain number of children. For example, after the third child, stop the child benefits payments for the subsequent children thereafter. Secondly, perhaps keeping the payment for each child at a constant rate of €140 may be efficient. Combining both these suggestions may enable the Irish Government to save money while still keeping the people of Ireland at least partially satisfied and above board.

All in all, looking at the economic cost benefit analysis it is clear to see that the Governments notion of altering the Child Benefits payment may not prove to be as efficient as the Government imagined and perhaps they need to go back to the drawing board should they need a remedy for rebuilding the economy in Ireland.