During the boom efforts were made to encourage as many women to
work as possible. The tax laws designed to achieve this are still in .jpg)
place and
now, because of the recession, are more wasteful and inappropriate than ever.
I am writing about tax individualisation and how it favours dual
income families over one-income families. Tax individualisation was supposedly
put in place to facilitate families to pay childcare fees while both parents
were working. But there are three glaring flaws.
The first is very simple: tax reductions for dual income status
are not linked to the payment of childcare costs. They are given whether
couples have young children in paid childcare, young children who are minded by
grandparents, independent adult children – or even no children. This is waste!
Secondly, it’s a myth that this tax break exists to make childcare
more affordable for parents who both want to work. This is clear when we look
in detail at how it favours high earners. For low income families, the lower
the income, the less they benefit from this measure.
In fact, families with a joint income under €41,800 don’t benefit
at all. If the government was truly concerned for poor families struggling with
childcare fees, why didn’t they provide the tax benefit through tax credits,
which would have benefited all taxpayers?
At the other end of the pay scale, there is no upper cap on income
for eligibility. A married couple who both work for €100,000 salaries gets a €5,000
tax break every year.
Thirdly, the principle is to financially reward couples for having
two incomes rather than one. This is totally inappropriate especially in a time
of high unemployment. If this tax policy is succeeding in making single-income
couples into dual-income couples, it will have the inevitable side-effect of
leaving more households with no job because a household with two jobs means some
other household has no jobs.
This tax benefit should be reformed in the upcoming Budget, to
make it less wasteful and more targeted to those who need support. It should be
linked to the payment of childcare expenses; it should change from a standard
rate cutoff increase to tax credit; and it should not apply over a certain high
income cap.
Or the amount should be reduced or simply scrapped.
It’s worth noting that most or all these reforms would increase
tax take for the government, without creating the hardship that goes with some
other revenue-raising options.