By spending 2 1/2 times the available resources on tax cuts (notably on rate reductions) as on welfare increases, Budget 2000 concentrated its largesse on better-off households, which gained four times more than poor households.
Another imbalance in the Budget was the decision to spend only £1 on children for every £11.42 given to adults. This was done despite the fact that the poverty risk for children is greater than for adults and that the consequences of child poverty are a lifelong legacy of disadvantage and under-achievement. Failure to tackle child poverty will leave the State with further costs down the road in terms of paying for compensatory educational measures, adult illiteracy, health costs and, of course, welfare payments. It is against this background of the upward redistribution of income achieved in Budget 2000 that the individualisation issue, which has dominated media reaction, must be considered.
Only one-income couples earning above £28,000 are affected by this. This group is a subset of the affluent cohorts which were the main gainers from Budget 2000. The call for "parity of treatment" is, in redistributive terms, an argument for giving even more money to better-off households. In practical terms, reversing individualisation would confer a subsidy of £180 million over three years on the richest 20 per cent of families. "Parity of treatment" can also be questioned as regards its effectiveness in targeting households with stay-at-home mothers. Transferability also benefits the many couples who don't have any dependent children. Reversing individualisation would give this group a gain of £150 million over three years. And there is no guarantee that mothers in the home directly gain from this tax measure, since it is channelled through the wages of the mainly male earner. Giving a payment to fathers for a mother's work in the home appears contradictory.
Unfortunately, in adopting the policy of individualisation, the Government only went half the way towards radical reform. The policy rationale for individualisation derives from the Government working group on the treatment of households. This group, on which the Combat Poverty Agency was represented, investigated inequities for families under the tax and welfare codes.
Its report put forward an argument for individualisation on the basis that transferability of bands was a poorly targeted benefit for families. It reasoned that by restricting transferability of bands and redirecting the resources through child benefit, a monthly increase of £32.50 (£7.50 a week) could be provided. The distributive effect of such a measure would favour low-income families, with the greatest gain going to the poorest households. While concentrating the gains on poorer families, all households with children would have benefited. The losers would have been well-off childless households. This would target resources at households with greatest need: the risk of poverty for families is up to three times that of couples without children (44 per cent compared to 15 per cent).
It would also ensure that the payment was put in the hands of mothers for them to allocate as they saw fit. Regrettably, the Minister for Finance did not choose this policy option, but used the "savings" to cut rates. We know now that the Government proposes to provide a £3,000 tax allowance to compensate for individualisation. So, on top of the £942 million in tax cuts given in Budget 2000, taxpayers will now get a further £125 million, a total of £1.67 billion.
Welfare recipients - the poorest families - gain nothing from this. This leaves welfare families to feed, clothe and maintain their children on £23 a week, while the objectively-measured weekly basic costs of a child are £32. Meanwhile, one-income taxpaying households earning over £10,400 with children or an aged or disabled dependant will get an allowance of £3,000 a year or £12.70 a week. (Single-earner households below £10,400 are already exempt from tax and therefore will get no benefit and those below £13,400 get only a partial benefit.)
Concentrating resources on middle- and high-income families is a perverse policy response at a time when Ireland has the second-highest rate of child poverty in the EU. However, because it is standard-rated, all taxpaying one-earner families will at least get the same benefit, which is good.
Against this, the payment is not differentiated by the number of children, which is unfair on larger families. A fairer alternative would have been to convert the £125 million into a cash "family" benefit. This would have provided £4.76 a week to the half a million families (via mothers) in receipt of child benefit. This approach would have been fair to all families and would have avoided work disincentives. While only a third of the value of the tax allowance, the family benefit could be increased in successive Budgets to a reasonable figure. The Government's decision to bring in a compensatory tax allowance for one-income families is a poorly targeted and partial response to the public outcry over the inequitable aspects of Budget 2000.
Most of the media attention has focused on the individualisation issue. Yet the real inequality was in terms of its treatment of rich and poor households, in particular the unfavourable treatment of low-income families and those on low pay.
It would appear that, in public at least, our understanding of social equity is quite restricted.
Jim Walsh is a policy analyst with the Combat Poverty Agency
