SIGNIFICANT LEGAL and financial obstacles have emerged over the Government’s plans to either tax or means-test child benefit payments.
Briefing information for Government officials shows both routes are fraught with difficulties, such as how to define a household and how to ensure equity between different household types, such as married and co-habiting couples.
Child benefit payments, worth about €166 a month per child, are made to 600,000 families and cost the State almost €2.5 billion a year.
Divisions have also emerged within the Government over whether to tax or means-test child benefit payments, in order to save €400-€500 million a year.
Senior sources say Minister for Social and Family Affairs Mary Hanafin favours taxing child benefit, which would be politically more popular as it allows all families to retain some level of child benefit payment.
The Department of Finance is understood to favour means-testing, which would be more effective in cutting the overall welfare bill. However, it would result in some families not receiving any form of child benefit payment.
Means-testing, according to Government officials, could create a major administrative burden by requiring each family to submit data at regular intervals to determine their eligibility for the payment. There would also be problems in defining a “household”, ensuring equity between different household types and addressing anomalies between different income types such as earnings, self-employment income and rental income.
Officials say issues arise in how to ensure the relevance of current income data and how responsive the means-testing system should be to in-year changes and income.
While Ms Hanafin favours taxing the benefit, this, too, is littered with potential problems. Some of the issues being considered, say officials, are whether the benefit is to be taxed on a household or individual basis.
The question of how to treat separated or divorced couples, particularly where a mother’s receipt of child benefit has been taken into account in a maintenance award, is another problematic area.
Officials are concerned taxing the benefit may remove the incentive to engage in low-paid work.
A spokeswoman for Ms Hanafin said yesterday that no decision has been made on whether to tax or means-test the payment. A formal decision is expected within a month.
Separately, briefing notes released under the Freedom of Information Act show senior officials are concerned about the legal implications of major changes to benefit payments. Concern has been expressed that the State could be vulnerable to legal action where recipients may have had a legitimate expectation a welfare benefit would continue.
