Leave child benefit alone. Tax maternity benefit instead.

The second that silly season finished and the Dail was back in session, various members of the current Government returned to their obnoxious and irresponsible practice of kite flying to test public reaction to hypothetical cuts as we hurtle towards Budget 2013.

Creeping dangerously back onto the agenda of the Department of Social Protection is a potential reduction in child benefit. To the uninitiated, child benefit is a universal payment available to all parents or guardians of children under 16 years of age, or under 18 years of age if the child is in full-time education, Youthreach training or has a disability. The benefit is paid monthly and increases for each additional child. You can read more about it here.

Irish Parenting Bloggers Group saying no to child benefit cuts, Mind the Baby blog, www.mindthebaby.ie Child benefit paid to over 520,000 families with over 1 million children cost the State over €2 billion last year. Cuts are being mooted as a way to reduce the State’s annual expenditure and the ongoing pressure from the Troika is forcing the Government to now look at making truly horrific choices about where to make further savings. Thank God I’m not them. I’d hate to be them.

But if I were them…

…I would leave child benefit alone. The beauty of the child benefit payment is its universality so regardless of the income of a child’s father or a child’s mother or a child’s guardian or the family’s income combined, everybody gets the same. Many voices are converging to shout that this is the very reason to cut, or tax, child benefit in the first place. It doesn’t discriminate against the rich and therefore rewards them. However this narrow argument concerns itself with accounting only. It doesn’t consider the reality that a lot of families lives involve complex relationships that have nothing to do with the account balance of an adult.

What about the controlling partner who keeps a firm grip on the family finances? What about the alcoholic or chronic gambler who spends the household income? What about the abusive parent who uses money, or it’s denial, as a form of control? What about the heavily indebted family where both parents had well paid jobs and a significant mortgage to match, who now find themselves unemployed and regular receivers of debt-collecting visitors? What about separated couples who can’t stand the sight of each other and barely speak but are forced to live under the same roof because finances demand it so? There are myriad examples of how difficult family life can be that unfortunately isn’t as simple as “well the Murphys earn 100k so no child benefit for them.”

A universal, regular, ring-fenced payment specifically for the care of the children is a welcome relief and comfort to any primary caregiver when times – financial or otherwise – are tough.

Don’t get me wrong, I’m not against people being means tested for child benefit but I’d question if there are savings to be made there, if that’s what we’re trying to achieve.  Let’s not forget, child benefit is a payment that must be applied for so there is always an option for wealthy parents to be responsible and not apply for it in the first place. It would be very interesting to see how many of the quoted 113,500 individuals earning over €100,000 who are entitled to claim child benefit actually do so. I’d hazard a guess it’s not as many as we think. I also wonder, if child benefit is means tested and the bar is set sufficiently high enough not to further punish middle-class families (this is the optimistic view I’m taking), then how much money will really be saved? Can we presume that some of the 113,500 are married to each other (consultant to consultant? CEO to marketing director?) and if that’s the case, can only claim for one family?

But there is no denying that €2 billion is a serious expense to the State. So how can we continue to protect and support families yet make substantial savings?

Tax maternity benefit.

It’s very simple really. If you are a woman living in Ireland who is covered by social insurance you are entitled to maternity benefit while on maternity leave. If you are a woman whose employer pays maternity leave, you’re still entitled to maternity benefit if you’re covered by social insurance. Employers aren’t obliged to pay women on maternity leave and they do so at their own discretion with various levels of compensation – from a fraction of the woman’s salary to full pay for the 26 weeks duration of her maternity leave. Civil and public servants are particularly lucky in that they are paid in full for their maternity leave.

It is this cohort of women – those in receipt of full pay – who will literally lose nothing if maternity benefit is taxed. That’s because, just in case it wasn’t clear in the last sentence, maternity benefit is a tax free payment. So if you’re a woman on maternity leave with full pay from your employer minus your maternity benefit, you actually make a profit on your maternity leave, either by receiving a top up on your salary in the form of not paying tax on the value of your maternity benefit payment or by claiming your tax back at the end of the tax year. That’s a profit, folks. Benefiting the most are women who are taxed on the higher tax rate because of course they’ve paid more tax in the first instance.

I am a huge advocate of paid maternity leave. In fact, I think paid maternity leave should be extended to 52 weeks to the benefit of mothers, children, breastfeeding rates, the health system and society as a whole but that’s a topic for another day. However, it is quite another thing that women should be receiving additional income in excess of their regular salary while on leave.

Full disclosure here, I received this top up payment myself and while it was a much needed addition to the family finances at the time, it was an unexpected – and undeserved – bonus. I’m sure my fellow beneficiaries would really prefer if I kept my mouth shut about this but that’s the problem with this country in the first place. If we continue to indulge protectionism only the weak and vulnerable will suffer.

Look, I’m not an economist (thank God) and I’m well aware that there are far less women on paid maternity leave  than there are children in the country so obviously the saving from one isn’t going to cancel out the saving that could be achieved from the other. But think about this: a woman being taxed on the higher tax band of 42% who is in receipt of full salary from her employer minus maternity benefit while on maternity leave will receive a tax free payment of just over €2,860 on top of her normal salary for the 26 weeks duration of her paid time off. That’s nearly a year’s worth of child benefit for two children.

There’s a saving to be made here. You can also be pretty sure that if this loophole exists, there must be others. Let’s look at those options first before we take the knife to families’ incomes.

10 Irish parenting bloggers have joined forces in a “BlogMarch” to raise awareness of the crippling impact that cuts to child benefit will have on Irish families if introduced in December’s budget. The bloggers are publishing a blog post each over ten days to highlight the negative impact that child benefit cuts will have. You can read each daily post here.

If you’d like to lend your support, you can sign the online petition here.

You can also share your thoughts with us on Twitter at #BlogMarch or Like our Facebook page.

14 thoughts on “Leave child benefit alone. Tax maternity benefit instead.”

  1. My employer only topped me up to the net amount I received pre-maternity leave so if that was taxed I would have been on less money than usual. Seems to be quite common now.

        1. Aha! I’m with you.

          People should be claiming their tax free payment while that’s what the system that exists. Otherwise it’s just unclaimed tax refund sitting there. It’s not going back into the Exchequer for use elsewhere.

          It’s the overall benefit that needs to be changed.

  2. Just following on from the link I posted to the Revenue website for Egg there, my suggestion is that maternity benefit should be regarded as income. The current policy is that it is not.

  3. I got such a shock when I went on mat leave last time and realised that I was financially better off than I had been while I was working. We were able to save the extra money and put it towards some unpaid leave at the end o my mat leave period.

    If the situation remains unchanged, we’ll probably do the same this time around. But if your proposal is accepted and maternity benefit is treated as taxable income, while I may mourn the loss the the extra income, I wouldn’t complain about it or protest against it because I agree with you that there is no reason for it not to be taxable.

    If your employer doesn’t top up your income, then you’re unlikely to pay much or any tax on your maternity benefit. And if they do, then you’ll pay the same taxes you do when you’re working. Nothing unfair about that. And certainly a lot more palatable than cuts to child benefit

  4. Have to completely disagree with you here I am afraid especially on this point: ‘It is this cohort of women – those in receipt of full pay – who will literally lose nothing if maternity benefit is taxed. ‘ – Well I was one of those ‘cohort’ and the fact that it wasn’t taxed meant that I could stay at home longer with both my children as we cut back on absolutely everything we could so I could take extra unpaid leave. It was so helpful to get a bit extra, and I was very very grateful for it because every bit extra meant more time with my children. The best solution I feel is to stop paying back the UNSECURED bond-holders as unsecured to me means they do not need to be paid. If I ever have another child I would be hoping my Maternity Benefit stays untaxed as I really would love to stay out of work as long as I did with my others

    1. I totally agree with where you’re coming from. In fact I was in the same position myself – similar to Lisa who commented above – whereby it enabled me to take the extended unpaid leave which was invaluable. But – and this is a big one – now that the budget has been published and maternity benefit will now be considered taxable income from July 2013, I’m delighted that this was the option they went with. A very reliable source told me during the week that shortening the length of maternity leave itself was on the table at one point in the budget negotiations and I think we can probably all agree that that would be totally unacceptable.

What do you think?