While the childcare supplement is being phased out, it remains unclear how the Government plans to change child benefit, writes CAROLINE MADDEN

THE SUPPLEMENTARY Budget was described as giving to parents with one hand and taking away with the other. Although the announcement of a free pre-school year has been widely welcomed by lobby groups, Minister for Finance Brian Lenihan made it clear that it is only a matter of time before child benefit payments become means-tested or taxed. So how will the Budget hit parents’ pockets, and what further changes are coming down the line?

SCRAPPING OF EARLY CHILDCARE SUPPLEMENT

Described by Labour finance spokeswoman Joan Burton as “one of the worst-designed bribes ever given to young families” in her post-Budget analysis, the Early Childcare Supplement, introduced in 2006, is already being phased out.

“This scheme was introduced to help people with the cost of childcare at the height of the boom,” Lenihan said in his Budget speech last week, but in Burton’s opinion “it did absolutely nothing except drive up creche fees”.

The programme, which cost the State €480 million last year, is to be replaced by a free Early Childhood and Education Scheme for pre-school children at an estimated cost of €170 million a year.

Currently, parents of children under five are entitled to an annual Early Childcare Supplement of just under €1,000, paid monthly. However, the monthly rate will be halved from €83 to €41.50 per child on May 1st and phased out completely at the end of this year.

The free pre-school year will start in January 2010 and is expected to benefit 70,000 children every year. A capitation grant will be paid to service providers who provide free pre-school services.

“Regardless of income or ability to pay, all children will be entitled to avail of this pre-school service,” Minister for Children Barry Andrews said.

The exact details of how the scheme will operate in practice remain hazy but, according to the website of the Office of the Minister for Children, children enrolled in playschools will receive free pre-school provision of three hours per day, five days a week over a 38-week year.

This equates to a weekly capitation grant to the service provider of €64.50. Parents with children enrolled in these services will not be charged.

Children enrolled in full- or part-time childcare will receive free pre-school provision of two hours and 15 minutes per day, five days a week, over a 50-week period. This equates to a weekly capitation grant to the service provider of €48.50, with parents paying for their childcare net of this amount.

“Over the course of the year, the financial benefit of the scheme for a single child is over €2,400,” according to the Office of the Minister for Children.

In order to introduce the scheme as quickly as possible, it will come into force in January of next year. However, in future years the pre-school year will start in September. Children born between March 1st, 2005 and June 1st, 2006 will be eligible to enter the scheme in January 2010.

In the future, all children between the ages of three years and three months and four years and six months at September 1st each year will be eligible, and parents who wish to avail of the scheme can enrol their children with the available participating service provider of their choice.

“Parents should have regard to the enrolment policies of their local primary schools in making decisions regarding the age that their children should avail of the pre-school year,” the Minister’s office advises.

The new scheme has been warmly welcomed, but the feeling is that the devil will be in the detail.

“The redirection of the Early Childhood Supplement into a new scheme of one year’s free pre-primary education for all Irish children is very welcome,” commented Teresa Heeney, director of services of the National Children’s Nurseries Association (NCNA), which has campaigned for this measure for years. “While we are cautious about the detail of the scheme which remains to be worked out, this measure acknowledges the value of investing in children in their earliest years,” she added.

The National Women’s Council of Ireland (NWCI) also welcomed the scheme, describing it as an important step in addressing the childcare crisis, in particular for families in poverty.

“However, the manner in which the scheme will be implemented remains unclear given the poor childcare infrastructure currently in place, particularly in rural areas,” NWCI acting director Orla O’Connor said.

“We don’t fully know the details yet,” echoes Irene Gunning of the Irish Pre-school Play Association (IPPA). She says that their phones have been “hopping” with calls from parents looking for more information on how exactly the scheme will operate.

According to the Office of the Minister for Children, a helpline will be in place from next Monday, April 20th, for parents and childcare providers who have th queries in relation to the operation of the new scheme. The helpline number will be 1890 30 30 39.

CHILD BENEFIT TARGETED

Child benefit is a universal payment made to parents of children under 16 (or under 19 in certain circumstances – eg, if the child is in full-time education or has a disability). The current child benefit rate is set at €166 a month for each of the first two children, rising to €203 for each subsequent child.

Changes announced in the October budget changed the age criteria for child benefit. During 2009, children aged 18 will get half-rate payments and from January, they will not receive the benefit at all (although a compensatory payment will be made to certain families).

Now there are definite plans afoot to change the universal nature of this State support. In his Budget speech, Lenihan said the Government no longer thought it 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,” he announced.

Child and parent groups are united in their opposition to any such move. The NWCI is “very much opposed” to either taxation or means-testing of child benefit payments, according to Orla O’Connor. The organisation has called on the Minister to reverse his decision to make such changes until there is a “fully subsidised quality childcare infrastructure” in place.

A survey recently conducted by the NWCI highlighted the importance of this payment to parents. Two-thirds of respondents said child benefit was a critical part of their family income, while 45 per cent indicated that it would be a “financial disaster” if the rates were reduced.

However, the die is cast, and the days of a universal child benefit payment, regardless of financial position, are numbered – although introducing means-testing or taxation will be easier said than done. If the Government decides to means test the benefit, it will have to tread a very fine line when setting the income ceiling. Set it too low and they will hit parents who desperately need support to make ends meet. Set the ceiling too high and families who can afford to do without the payment will continue to benefit.

In a report published last year, John Sweeney of the National Economic and Social Council (NESC) secretariat outlined a number of logistical difficulties in trying to means test or tax child benefit payments.

For example, at the moment it is difficult to identify the income of families in receipt of child benefit, unless the claimant is also receiving assistance payments. “The Department of Social and Family Affairs pays child benefit on behalf of most children in the State, but no data on applicants’ incomes are required or collected,” the report points out.

Revenue records do not lend themselves to bringing in such changes either.

“Individuals choose between being taxed as individuals or as a married couple. Where they elect the former, Revenue currently has no basis on their tax records for identifying taxpayers who are, in fact, parents rearing a child together,” the report says.

Means testing or taxing child benefit payments would require new forms of collaboration between the department and Revenue.

Means-testing “seems to be the traditional route”, Sweeney observes, but it would significantly increase the workload of the department responsible (presumably the Department of Social and Family Affairs).

“There is something much more automatic about handling things through the tax code,” he adds. “It would keep processing and administration costs much, much lower.”

Politically, means-testing could be problematic for the Government, as it would mean some people losing any entitlement to child benefit whereas, with taxation, the blow would be softened somewhat.

That makes taxation a more likely option, assuming the Government can work through the logistics involved.

Lenihan said in the October budget that he fully expects the Commission on Taxation to “examine options relating to the tax treatment of universal child benefit payments”, adding that he looked forward to any “progressive proposals” that they may make. Therefore, parents will probably have to wait for the commission to report back in July in order to get a clearer picture of the changes coming down the tracks.

RISING COST OF CHILDCARE

Regardless of the approach adopted by the Government, for the many parents shelling out between €800 and €1,000 a month on creche fees per child, the financial relief provided by the free pre-school year won’t be huge. And although the overall cost of living in the State may be falling, childcare costs are still mounting.

According to CSO figures for March, the cost of childcare increased by 5.8 per cent in the previous 12 months at a time when prices generally were falling at the fastest rate in decades. Almost half of all respondents to the NWCI survey said that their childcare costs had increased since December 2008. Just 3 per cent had noticed costs falling.

Individuals involved in the industry have noticed that cash-strapped parents are increasingly looking for new childcare arrangements in order to save money, for example trying to switch to part-time creche places or pay for childcare on an hourly rather than a daily basis. Meanwhile, quite a number of parents are moving their children out of regulated childcare providers into cheaper, unregulated childcare.