Proposals to create a two tier Child Benefit system could have a negative effect on family formation, a leading think tank has warned.

Social Justice Ireland (SJI), in response to suggestions that child benefit be cut in the Government’s upcoming Budget, said that was “currently the only universal payment or benefit made by Government to children and families”.

SJI is headed by Fr Sean Healy.

In a document entitled Child Benefit and Child Poverty, SJI said Child Benefit was “a contribution by Government to the cost of raising children in families in line with its stated commitments as articulated in Towards 2016 and the National Children’s Strategy”.  

“As such Child Benefit is a family friendly payment,” it said.

It addressed a series of policy proposals made in respect of the payment. One of these was the suggestion of a two-tier child benefit system.

This would involve reducing the overall level of Child Benefit, but introducing a second tier higher payment for households on low incomes.

SJI acknowledge that this could see low income families maintain or slightly increase their income depending on the levels at which the payments are set.

But it warned that the proposal could result in parents deciding not to form a family or to break up.

“As a result this could lead to policy incentivising family break-up and/or disincentivising family formation,” the document said.

“Policy should not have this effect and this is another reason why this proposal is not acceptable.”

The document explained: “As a household’s income approached the cut-off point for the second tier payment there would be an incentive for couples to make the adjustments required to continue receiving the full payment e.g. break up as a couple.  

“On the other hand if two parents who were not living together faced the likelihood of losing this payment if they became part of the same household then there would be an incentive not to establish one household. Consequently, this development could incentivise family break-up and/or disincentivise family formation.”

It also warned that the introduction of a two-tier payment system would create a new unemployment trap for low income households and many of those already at risk of poverty.  

This was because of the loss of income resulting from a loss of a second-tier payment if employment was taken up.  

“Such a potential loss of income could result in a parent withdrawing from the labour market. If taking up a job or working longer hours were to lead to a loss of the second-tier payment then there would be a disincentive for such households to move in this direction,” the document warned.

The document also addressed the suggestion that the Child Benefit should be taxed, warning that such a proposal would be a form of “horizontal inequity”.  

It said that the taxation of Child Benefit would mean that the Government would effectively be placing a tax on families with children.

It posed the example of two households, each earning €100,000 with the same earning patterns, one with two adults and two children and one with two adults and no children.

“The taxation of Child Benefit reduces the income of the first household but has no effect on the second household,” it said.

“So the 2-person household maintains its income but the 4-person household sees their income reduced.”

“This is a form of horizontal inequity and is both unfair and unjust. Taxing Child Benefit penalises households with children,” it said.