The Proposed 2nd Free Pre-School Year and cuts to Child Benefit. What's Up?

national | miscellaneous | opinion/analysis Thursday May 16, 2013 20:04 by T

Are parents going to come out better or worse?

In the last week or so it was announced by the government that they were seriously considering extending the current free Pre-School year to a second free pre-school year. The government has been giving it a positive spin but also on the table as part of the deal is the suggestion that child benefit would be reduced by €20 per month. A lot of figures have been bandied about but the real question is: are the government trying to pull a fast one yet again and how do the numbers stack up? We attempt to look at the figures here.

In Ireland much of the protection or provision for children known as Child Income Supports (CIS) is provided to families for raising children comes in the form of cash payments which is the child benefit paid every month for each child to the parents regardless of their income. There are also some additional payments for people on low wage or who are unemployed in the form of additional social welfare payments known as Qualified Child Increases (QCI) (for things like Back to School Clothing and Footwear Allowance which was cut in the last budget) and Family Income Supplement (FIS). But that's mainly it. Clearly those on higher incomes do not receive QCI and FIS payments, but for those at the lower end of the income bracket this rapidly increases. Overall though about 50% of support is in the form of child benefit and the rest provided through QCI and FIS, which means there are a lot of children in low income families. In fact in 2010 25% of Irish child lived in jobless households. The Survey on Income and Living Conditions shows that from 2009 to 2011 consistent child poverty increased from 8.7% to 9.3%, and child deprivation rates rose to 32% from 25%. And for lone parents with children, deprivation levels reach an unbelievable level of 56%. The result is that over 100,000 children now experience consistent poverty in Ireland. At during the same period the top 10% got richer.

So to remind ourselves the purpose of state support for children is to help families with the cost of raising children and ensuring that poverty is reduced as much as possible. Endless studies have shown that the earliest years in a child's life are critical in every aspect in relation to their future development whether this be getting access to healthy nutritious food (not really on the agenda with the government), exercise, mental stimulation, access to health services and of course education, although it must be emphasized quality education rather than drudge. Thus the government proposal to introduce the 2nd free pre-school year would seem it is all in the right direction since not everyone can afford to send their children to pre-school whilst others can and the small gains made in these early years have lasting impact and are greatly amplified in the years ahead. Hence it explains why the children of wealthy parents tend to consistently do well because their parents have the financial and other resources at their disposal.

However, how do we know that the government is not giving with one hand but taking more with the other? It is inconceivable in the economic crisis that we are in where with the EU & IMF dictating every aspect of government expenditure with the overall trend being cuts, more cuts and then more cuts, that the government could be actually planning to spend more on children. It just doesn't happen that way. Lets go back a little in history to 2006 during the boom years. In that year the government introduced the Early Child Supplement which was an extra €250 per quarter (or €1,000 per year) for each child under the age of six. Now some people might think this was excess but regardless once the bust happened and it was time to bailout the wealthy, this scheme was abandoned and it was replaced with the free pre-school year in 2010 which they are now talking about extending. Many parents thought it was a fair deal due to government PR & spin and had not realized the government was replacing 6 x €1,000 payments with just the equivalent approximately &euro2,375 because this is what it is costing the government (per child) as they are paying pre-schools €62.50 for 38 weeks per year for each child although admittedly the payment was slightly higher and since been reduced to €62.50. So are they pulling the same trick? On past record and given their squeeze and relentless pressure to cut then it has to be the case. So lets see.

Earlier this year the government published the "Advisory Group on Tax and Social Welfare Report on Child and Family Income Support" otherwise known as the Mangan Report and there were numerous proposals in it. It's remit was to reform the child welfare / payments system but in the current climate this only amounts to one thing and that is cuts and then more cuts. There is no way the total expenditure will stay the same even if they rebalance it and reduce the child benefit cash payments in lieu of additional services although the spin is more or less that. One of the suggestions or rather new polices the report proposes is to tax child benefit and they expect to net around €300 million. They are also suggesting a two-tiered payment system whereby less would be paid out to the top earners and more focus on the bottom earners. The general idea is that the payments are more targeted. A PDF copy of the report is available below for those who wish to do their own citizen investigation in the spirit of acting as an informed citizen.

But first some figures. Child Benefit is paid out for about 1,148,000 children and with the payment at €130 per month, this comes to 130x12x1,148,000 or approximately 1,790 million or €1.8 billion with administration costs putting this a bit higher. According to the Mangan report, the total expenditure is just over €3 billion down almost €600 million since 2008. It should be noted that the monthly child benefit has been reduced since 2009 from €166 per month to the present €130 resulting in a loss of €432 per child. Whilst the top earners probably haven't noticed, for families in the lower end of the income bracket this is a significant reduction and adds up when you consider many households will have 2 or 3 children. This reduction in child benefit of €432 per child per year multiplied by the total (1,148,000) comes to €495 million indicating the bulk of the €600 million has come from there.

The introduction of the second free pre-school year would be available to at least 65,000 children but the government own figures suggest up to 130,000 would avail of it. But just using the 65k figure and the current cost of the free year (€62.5 x 38 weeks) €2,375 gives €154 million which means at 130k the cost would be double at 300+ million and it tallies with their own internal estimates which hover around the €200+million mark. So have the government gone soft or something? No. They are suggesting a reduction of €20 per month to pay for it. The figures then are: (20 x 12 months) x1,148,000 = €275 million which should more than cover the cost of the 2nd year and result in a significant cut of the overall expenditure for the government. However, Labour because they fear a wipeout at the next election, are saying no reduction -a promise the ECB/IMF will not allow. Anyhow where's the catch? The catch is that the government will be under pressure to make more reductions in the overall child income support costs and that means they will likely introduce taxation on child benefit and or bring in a bigger reduction than €20

If they tax child benefit then the top incomes will be hit harder and on face value that looks good. The downside is where will the actual cut-offs be? You can be sure they will make such mileage out of how they are hitting the top earners that the low mark will be set very low and huge swathes of the middle and slightly below middle income earners will be hit particularly hard. But all this is not in a vacuum. We have all been hit by the hated property tax currently set at 0.18% but this is set to rise to 0.21% and water charges are to be introduced which should come to around €600 per year. Another benefit for the government once it brings in the two tier system is that it splits the population. The right wing media will then be able to relentlessly claim that social welfare spongers are getting generous child benefit payments and the people in Latvia get 10 times less or something like that. It will make further attacks easy and trivial and the true agenda will be to shrink the total cost of child income payments lower and lower. So it is important that everyone regardless of income gets some portion of the child benefit because that way everyone has a vested interest to stop further attacks. After-all the IMF caused devastation to social budgets throughout Africa in the 1980s and 1990s the period during which the mega-slums grew, so why would things be any different now? It is right though that people on the higher incomes should pay more and be taxed more but the way to do it is not through child benefit but to introduce a more equitable tax system whereby the tax rate is higher for higher incomes. The government has consistently refused to do this. At the moment we just have two tax bands at 20% and 40%. There is no reason in the world why we can't have another at 50%, 60% and 70% as you go up. This is how you rebalance the system. Having said that we shouldn't been paying any of the banking, speculator & developer private bailout debt that was made public by placing it on the back of the people. It should also be realized that many on low incomes given all the other cuts, are absolutely in dire need of the current child benefit to get them through the week.

A further point to consider is that the government have said the free pre-school year is about quality education. Already they have reduced the capitation rate paid to pre-schools (of which there are estimated to be 5,000) down to €62.50 per child per week and at the same time increased the teacher to child ratio from 1:10 to 1:11. The incentive will be to drive these payments down much lower. As it goes lower the smaller pre-schools will be unable to cover their costs as they will not have the space to take on more children to make up for the lower payments and will be driven out of business leaving the larger corporate type businesses that own multiple creches and pre-schools. In these bigger enterprises the people working there are just employees most of whom are on low wage and there will be far less incentive to perform well and provide quality education when the bulk of the profits will be siphoned off by the owners and or investors. For example in a recent survey of pre-schools by Early Childhood Ireland (representing 80% of pre-schools & creches), wage levels varied from approximately €9 per hour to €13 per hour for those with degree level qualifications. When you work this out for the 3 hours a day 5 days a week for 38 weeks of the year it means the salaries are €5,130 to €7,410 which is not alot considering the cost of college fees or rather administration fees are over €2,500 per year and rising and not including all the other costs. In the same survey financing and sustainability were key factors with over half (51%) of all members surveyed, expecting their financial situation to get worse in the coming year and 63% expecting expenses to increase. At the same time councils are continually increasing rates and water charges. The survey goes on to reveal that staff salaries are their biggest cost and there is huge pressure to cut down on this. In a similar vein an earlier salary survey by ECI elicited this response: The dichotomy for employers in the early year’s sector is that ‘parents want to pay less, but staff want pay rises’. So how is quality supposed to be maintained under these types of pressures?

The danger and the evident fact is that these trends mean the industry is going to become more concentrated resulting in a small number of larger enterprises and these will be under enormous commercial pressure to extract more from their customers and are more likely to push dubious foods, brands, ideology and general crash commercialism. In others little will remain of quality education after a period of a few years. In the meantime as the payments go down, there is less incentive for the wealthy to avail of the free pre-school years and they will withdraw their kids to a smaller set of private pre-schools providing real quality education with plenty of stimulation and learning to trigger the imagination of their youngsters. As usual the children of the low income parents will then be captive to a handful of large conglomerates controlling the market who will ensure through lobbying that the system is never reformed for the better.

So what is the conclusion. The conclusion is that government are going to continue cutting and use the one positive aspect -i.e. a 2nd free pre-school year act as the fig leaf while the support needed in the still important subsequent years of pre-school will see less state support and help since €20 x12 = €240 less will be paid per year. Incidently the reason why Ruari Quinn's other cabinet colleagues thought it was a great idea is because they are delighted his department will take the cuts leaving the pressure of them in their own. And what is the solution? The solution is to pay attention to what is being offered