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February 2008

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Taxing Child Benefit would not necessarily undermine universality or the horizontal principle. Neither would it create poverty traps - unlike means-tested programmes. The full flat-rate payment would still be made regardless of income. With taxation, a portion would be clawed back but not at the point of payment. The issue is whether it is administratively worth it and politically possible. The Revenue Commissioners estimated that taxing Child Benefit would bring in €320 million in 2003. In that year, that money could have been re-invested in Child Benefit with a benefit of an extra €5 per week - an increase to those on lower incomes but not much.

Or it could finance a doubling of Child Dependency Allowances, which would mean an extra €20 per week for each child for those on social welfare. The problem here is that when people enter work, that money would be eventually withdrawn. This sets up either a disincentive or a trap whereby the net income from work - especially low-paid work - is not a whole lot more than income from social welfare which is set below the poverty line.

Another issue is whether there are a lot of 'wealthy people' with children to claw back from. Though 30% of taxpayers are in the top rate of tax this is mostly single earners. Thus, proportionately fewer children.

THere are no short-cuts in these matters. 'Targetting' creates traps and disincentives and can be administratively cumbersome and arbitrary. Universal payments are expensive and unfocussed (at least in regards to combating poverty. We should view it as a mix: participation in the workforce at meaningful wages, combined with universal benefits and services (e.g. medical cards) and a socia welfare system that ensures that all households (for children live in households) are above the poverty line. Child income payments are just one of a plethora of instruments that can be used. But it is arguable that we are not getting the ol' value-for-money in the current system of child-income payments.

In that context, a Basic or Citizens' Income is certainly worth serious consideration.

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