It seems that every summer, the government of the day sets off at least one little tax reform bomblet that rattles the windows of middle Ireland, resulting in the inevitable denunciation of whatever ‘reform’ the grim apparatchik in the Department of Finance had suggested to enrich the Exchequer next October on Budget Day.
Earlier this month it was the hoary old chestnut of the means testing of Child Benefit; last year it was the more original idea of taxing capital gains on private residences. Needless to say, both these ‘flyers’ sank pretty quickly after being denounced by ‘senior government officials’ — in the case of child benefit, by the Taoiseach himself.
I’ve been in favour of the means-testing of social welfare benefits for, well, forever. And so is the government, which has always applied means-testing to some, but not to others, even if they are clearly linked to PRSI contributions.
For example, it means-tests Non-Contributory State Pensions and the Household Benefits Package (the energy allowance, TV licence, etc). The Qualified Adult Dependent Payment is means-tested as is the Carer’s Allowance and Job-Seeker’s Allowance. Access to public housing and housing benefits paid to private sector tenants is means-tested, as is the Working Family Payment and even the Non-Contributory Guardian’s Payment (in this case the child’s assets are means-tested).
The principal behind means-testing is simple enough: people with sufficient assets — income, savings or capital gains — do not need a social welfare payment that would have a better outcome if paid to people and families with much lower incomes or assets.
Difficulty arises in establishing the definition of ‘sufficient’ and what the political impact would be for the government party that dared introduce it.
The suggestion that an €100,000 income might be sufficient for the introduction of child benefit means-testing is a case in point. To anyone struggling on minimum wage, or living in emergency accommodation, it’s a fortune.
But as the Taoiseach suggested, “Earning €100,000 does not mean you are rich in this country”. And he’s right.
Imagine an educated, professional married couple in their mid to late 30s, both working full time in the private sector and both earning €50k. Imagine that they have two young children, the youngest of whom is in crèche. The couple own a mortgaged house worth c€300,000, drive one nearly new car (the other partner takes public transport).
Welcome to middle income, middle class, middle Ireland, whose typical, income and city-based expenses I have broken down:
Aside from earning a joint €100,000 income plus a tax-free annual child benefit of €3,360, this couple, like over half of all private sector workers, do not have a private pension fund. But they do pay approximately €31,000 in tax, USC and PRSI and have about €69,000 left over (or €6,030 a month) with which to meet all their monthly costs.
Once they pay typical annual mortgage and related compulsory insurance payments of €21,000 they also pay for groceries and lunches (€10,400); crèche fees and after school care for the primary school aged child (€15,600); travel expenses (€7,200); utilities — energy, mobiles, broadband (€2,760); private health insurance (a Laya healthcare adult plan with the children going free) of €1,728. Christmas and holidays cost €4,000 and clothing, €2,400). They are now left with €7,644 or €637 a month to meet all their other expenses.
That sounds like a lot of money, but note that I haven’t estimated any other debt repayments other than the mortgage and car payment. How realistic is that?
This couple, aside from their PRSI contributions towards the State Pension have no other retirement fund. At their age they should be saving 15%-20% of their gross income if they want to have any kind of comfortable old age.
Nor do they have a contingency or emergency fund if they were hit with a big unexpected bill or illness. They have no additional life insurance, nor a long term education fund for their kids. (On their income there will be no third level grants.) I haven’t even included the costs of uniforms and books and school donations or First Communions/birthdays/ anniversaries.
Realistically, how far can that additional €637 a month stretch?
Should the tax free Child Benefit — and other universal benefits — be means-tested?
Of course they should. But the government needs to take into account the total financial position of the family or individual, how many children they have, financial commitments and reasonable expectations.