Child Benefit

Tim Callan and Brian Nolan argue here that taxing child benefit has superior distributive properties to a cut in the level of child benefit payment.

10 thoughts on “Child Benefit”

  1. That’s a very sensible argument. I think when most people consider the prospect of child benefit being taxed, they assume everyone will be subject to the same rate, as with VAT.

  2. the other point re: means testing is that it is a jobs programme for civil servants processing the forms. All benefits should be taxable income, and DIRT should be converted to income tax also.

  3. Well, apparently taxing it is too hard to do, mainly down to Charlies individualisation experiments…..

  4. It is such an incredibly obviously correct point, and isn’t it amazing how every time an egalitarian policy response like this is proposed, we are told that it is really just too difficult to implement.

  5. The government response fits in line with their agenda. Look how the commission on taxation report has been shelved and the entire 4 billion will now come from cuts instead of some from cuts and some from new taxes. This despite the fact that Ireland has very low effective tax rates for people on median income.

  6. Taxes will also rise if not now, later! Have patience!

    Australia tailors the rates of the two childrens payments, A and B, according to the income of the maintaining person(s). Far more detailed than merely taxing the payment(s)! When I was a parasite, sucking up taxes, we were often told that this or that sytem was marvellous, only to find that it originated in Australia.

    Gopvernments do not tell the truth…….

  7. I broadly agree with the Callan/Nolan line, but it might be worth going back to the original idea behind the way in which child benefit is paid. Child benefit (or childrens allowance as it used be called) was originally paid via a tax allowance to the main earner in a household (almost always the father). Following practice in the UK (I am fairly certain they were the first in this regard) it was then changed to a direct payment to the mother. The belief was that mothers would be more sensitive to the needs of children and hence in that regard the payment would be better targetted. I did some research on this a few years ago, looking at HBS data to see whether expenditure from child benefit differed from expenditure from general income (http://www.ucd.ie/economics/research/papers/1999/ – see working paper wp 99/26). I found that it was generally more targetted towards children but that this was due more to its labelling effect (as a direct payment labelled as a child benefit) rather than because it was paid to the mother. While this may seem irrational (a dollar should be a dollar should be a dollar no matter what the source of the dollar), such a labelling effect has been observed elsewhere (e.g. in old-age pension payments in South Africa). Almost identical research on child benefit independently carried out by Peter Kooreman around about the same time (and published in the AER, grrrrrrrrr!) found similar results for Dutch data.

    So there may be more substantive administrative grounds for being wary of taxing child benefit than has been previously thought (though somehow I don’t think this is what critics of taxing child benefit have been getting at). Any reform (and as I say I don’t disagree with the basic Callan/Nolan argument) should try to retain child benefit as a direct payment. If it becomes too closely integrated into the tax system then the danger is that it will be less effective in fulfilling its role, which is to benefit children.

  8. “This would raise approximately €400 million for the exchequer – a very substantial amount.”

    Or about 5 days worth of current deficit.

  9. If you canceled ALL tax reliefs, write-offs, etc. etc, how much additional tax might be brought in? Does anyone know?

    How about a 100%, emergency income tax, for ALL income in excess of 6 x [the minimum wage x 8 x 365]?? Deflationary?

    The real difficulty is to accept the lack of equity in our taxation system, and to actually do something to address this level of inequity.

    Never underestimate the socially destructive power of vested interest groups when it comes to their incomes!

    B Peter

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