Category: Fiscal Policy

The Irish  Times reported in yesterday’s edition on the debate in government over whether to try to effect savings in child benefit expenditure (which currently costs almost €2.5 billion per annum) through means testing or through taxing benefit payments. The report concluded that “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.”

It seems to me that to claim a legitimate expectation that a welfare payment (or, presumably, any government payment) would continue would make government decision-making, whether in fiscal policy or welfare policy, totally unmanageable. At face value, it would seem to make any change to a government expenditure scheme, once introduced, impossible (and why stop at expenditure – did we not also have a legitimate expectation that the government would refrain from introducing an income levy?).

It is interesting to contrast this with payments which were actually cut in the budget. In agriculture, for example, annual payments for those farmers enrolled in the Rural Environment Protection Scheme (REPS) were cut by 17% in 2009. There is a much stronger argument against cutting these payments as these are contractual payments – farmers enter into an agreeement to follow certain environmentally-sensitive farming practices for a five year period, in return for a payment from  the State. However, the State has inserted a clause into the Regulation (away towards the end under Paragraph 28) that “The Minister reserves the right to vary, where occasion so demands, the amount of financial aid wherever specified in the Scheme subject at all times to the provisions of any relevant European Union legislation.” Given that farmers incur costly obligations on entering REPS, this unilateral right  on the part of the State to vary the amount of payments may appear rather extraordinary. Particularly given that if a farmer were to decide to leave the  Scheme in response to a change in payments, then aid already paid must be re-imbursed. If these farmers had no legitimate expectation that payments would continue at the level agreed at the start of the 5-year scheme despite a contractual agreement with the Department of Agriculture Fisheries and Food, it seems extraordinary that officials are fearful that any change to welfare payments might be challenged on the basis of ‘what we have, we hold’.