Is Govt planning a devastating cut in income for low-paid workers?

Tuesday 14 May 2013

By Camille Loftus

THE first report of the Advisory Group appointed by Minister Joan Burton to proposed changes in the tax and social welfare codes was published recently. It covers the issue of child income supports.

The Advisory Group focused on two different reforms: a) taxing Child Benefit, or b) restructuring child income supports into two ‘tiers’. A first ‘tier’ would be paid to everyone regardless of income, and a second tier would be means-tested.

Higher earners would receive only the universal ‘first tier’ – as is the case with Child Benefit – although it would be paid at a lower rate.

Families with incomes below €25,000 a year would receive the full rate of second tier payment, after this it would be gradually withdrawn as income rises. It was the ‘two-tier’ income support model that the Group recommended.

There are some important strengths in this model. Paying less support to higher earners seems fair: with resources as scarce as they are, it is important that they are directed to those who need them most.

The Group also recommends that a universal support for all children be retained, in recognition of the state’s commitment to supporting all children. However, there is a catch, and it’s a big one for low paid workers. These two tiers would replace supports currently available including Child Benefit and the additional child allowances for social welfare recipients. But crucially, the ‘two-tier’ model would also replace Family Income Supplement (FIS) – the top up payment for families in low paid employment. And that has very significant implications for low paid working families.

Crucially, although FIS is means tested, it provides more support to families who are working than those who are not. For many, it’s vital in stretching inadequate wages to meet their family’s needs. Replacing FIS with a two-tier child income support means that by far the greatest losses would be faced by low-paid workers entitled to FIS.

To get a sense of the scale of these losses, the table below compares net incomes for a household with a couple and two young children, and gives examples of the impact this reform would have on families at different earning levels. It is clear that the lowest paid workers would face the biggest losses:

• A part-time worker, earning €200, stands to lose over €180 in income supports each week;
• A full-time minimum wage worker, earning €350 a week, would lose just short of €100 a week.
• Where the family is just over the threshold at which the second tier payment starts to be reduced – earning €500 a week – they would see their income fall by €27 per week.
• In contrast, a high-earning family, who would not have any entitlement at all to the second tier payment, would face losses of only €12 per week.

In other words, a family relying on a full-time minimum wage, plus FIS, would lose over EIGHT times more in cash income supports than a family at the top of the earning scale. (See table below)

FIS is far from a perfect solution to the difficult problem of low wages. But it is a vital lifeline to many low paid families – and could be for many more.

The ESRI has estimated that poverty could be reduced by three percentage points if everyone who was entitled to FIS actually received it.

That’s a much more impressive impact on poverty than the reduction of 0.2 percentage points that the Advisory Group’s proposals would achieve.

We need to do much more to support low-paid working families. One way of doing this would be to introduce a new benefit for people in work, which could be delivered via the tax system, to boost the value of workers’ take-home pay.

The Advisory Group is currently supposed to be considering this area. But this work won’t be completed before the next budget, when reforms to child income supports could be introduced.

And it is low-paid workers who would pay the considerable cost of that delay – and indeed the risk that no alternative would be found.

That’s far too big of a risk to take. If these proposals are to be implemented, FIS must be retained until a better support for working families struggling on low pay is signed, sealed and delivered.

Am I eligible for FIS?

It’s estimated that as few as four in 10 people who are eligible for FIS actually claim it. If you’re in low-paid work, it’s worth checking if you might be entitled. If:

• You (or you and your partner combined) work for at least 19 hours a week (or 38 hours over a fortnight); and l You have at least one child under 18 – or aged 18-22 if they are in full-time education; and
• Your total after tax income is below the thresholds set by the DSP.

You can get an information leaflet for FIS at
http://www.welfare.ie/en/downloads/sw22.pdf.

Text “Form FIS” followed by your name and address to 51909 to get an application form. Standard text rates apply.