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The case for family benefits
Children and Youth Services Review 34 (2012) 590–596
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Children and Youth Services Review journal homepage: www.elsevier.com/locate/childyouth
The case for family benefits Jonathan Bradshaw Department of Social Policy and Social Work, University of York, Heslington, York, YO10 5DD UK
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Available online 14 October 2011 Keywords: Child Family Benefits Comparison
a b s t r a c t The package of support for families with children in the USA is not terribly effective. The model of targeted social assistance is also the one that has been advocated by the World Bank in middle and low income countries. It is failing poor children. This paper uses comparisons of child benefit packages in the European Union and Central and Eastern European and Confederation of Independent States (CEE/CIS) countries derived using model family methods. It rehearses the arguments in favour of universal family benefits — the norm in the EU. It calls for a new approach in the CEE/CIS and USA. © 2011 Elsevier Ltd. All rights reserved.
1. Introduction Sheila Kamerman (of course with Al Kahn) never succeeded in persuading the United States to adopt a universal child benefit. Although Earned Income Tax Credit and SNAP have been much improved in level recently, both still taper out at low earning levels (well below a European poverty threshold) and they reached only 7.2% and 9.3% respectively of the US population in 2008. TANF is very variable between states but only helps 1.3% of the US families with children. 1 Although (as we shall see) the US is no longer a laggard in the level of its family benefit package for working families, its social assistance regime for workless families surely leaves much to be desired. 2 The overall effort in terms of expenditure on families in 2007 was 1.17% of GDP compared with, for example, 3.56% in the UK and 2.23% average for the OECD. 3 Therefore, for this mainly American audience, this paper is devoted to restating the case for family benefits and particularly universal child benefits. 4 There are two other motives. First universal child benefits are under attack in a number of countries in the face of the economic crisis and the deficit — for example they have been reduced in Ireland and will be withdrawn from higher rate tax payers in the UK. Second the US model has influenced the so called Washington Consensus which has determined the pattern of development of family benefit systems in low and middle income countries. As a result
there are hardly any middle income countries in the world which has a decent family benefit system and only one (Argentina) with a universal child benefit. The World Bank seems to hate universal child benefits (though they have recently come out in favour of universal minimum pension schemes 5) and the targeted social assistance schemes that have been developed in middle income countries with their advice are failing miserably. So this paper starts with rehearsing the arguments in favour of universal child benefits. It then presents some comparative data on the role of universal programmes in the universal family benefit systems in Europe (and the US) and then the CEE/CIS countries. Then it concludes. 2. Arguments in favour of universal child benefits 6 2.1. Horizontal equity They are recognition by the state of the burden being carried by parents in rearing children. The state and every citizen benefit from parents' sacrifice and have an economic and social interest in ensuring the best possible outcomes of the work of parenting. It is unfair for the single and childless to benefit but not to contribute. It is a wise investment by the state to ensure that they do contribute. Child benefit also redistributes resources over the life cycle and from one generation to another. It plays a considerable part in reducing inequalities. 2.2. Fertility
E-mail address: [email protected]: http://www-users.york.ac.uk/~jrb1/. 1 My information here came from a presentation by Professor Michael Wiseman in Sydney, Australia in April 2011. 2 Ben-Shalom, Y., Moffitt, R. and Scholz, JK (2011) An Assessment of the Effectiveness of Anti-Poverty Programs in the United States Institute for Research on Poverty, Discussion Paper no. 1392-11. 3 OECD (2011) Doing Better for Families, Paris: OECD. In 2004 cash transfers reduced the poverty rate of single parent families from 36.9% to 21.9% and for two parent families from 10.0% to 5.9% see Table 6. 4 It therefore revisits some of the arguments in Garfinkel, I. (ed) (1979) Income-tested Transfer Programs: The Case for and Against, New York: Academic Press. 0190-7409/$ – see front matter © 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.childyouth.2011.10.009
One reason that fertility has declined in so many countries is because of the direct costs (of feeding, clothing etc) and the indirect 5 Dethier, J-J, Pestieau, P. and Ali, R.(2010) Universal Minimum Old Age Pensions. Impact on Poverty and Fiscal Cost in 18 Latin American Countries Policy Research Working Paper 5292, World Bank. 6 For more arguments from a distinguished economist's perspective See also Atkinson, A. (2011) The case for universal child benefit in Walker, A., Sinfield, A. and Walker, C. Fighting poverty, inequality and injustice, Bristol: Policy Press.
J. Bradshaw / Children and Youth Services Review 34 (2012) 590–596
costs (interrupted employment, lost earnings and promotion foregone) of children. One way of mitigating those costs is to pay child benefit (though child benefits alone are unlikely to be effective in turning around falling fertility). 7 This is not an argument heard in Britain and probably not in the US but it is an important issue in many other countries, including France, despite the fact that France now has one of the highest fertility rates in the OECD. 2.3. Poverty In almost all countries children have a higher risk of poverty than the population as a whole and in many countries (including the US) they have a higher risk of poverty than pensioners (the other main dependent group). Child benefits play an important part in reducing poverty rates and poverty gaps. If we did not have child benefit in the UK child poverty would be 9 percentage points higher than it is before housing costs and 7 percentage points higher after housing costs. In fact Child Benefit is nearly as good as (means-tested) child tax credit in reducing child poverty — without child tax credit child poverty would be 12 percentage points higher than it is before housing costs and 10 percentage points after housing costs. 2.4. Well-being There is some recent Canadian evidence 8 that suggests that child benefit programmes had significant positive effects on several measures of both child and maternal mental health and wellbeing, as well as a few measures of child physical health. They also found effects of child benefits on test scores. 2.5. Take-up Unlike means-tested benefits and tax credits child benefit is claimed by almost all those entitled to it. One reason for this may be because they avoid stigmatising recipients as poor. 2.6. Administration Universal (or near universal) child benefit schemes are much easier and cheaper to administer than means-tested alternatives. In most countries a birth certificate is the only evidence necessary. 2.7. Benefit to mothers Child benefits paid to mothers or carers provide a source of income independent of the breadwinner. This is an important advantage in that it provides security where resources are not shared in the household, or where, as a result of unemployment or illness, there are no other resources available. In times of crisis in family life, such as separation, divorce, desertion or imprisonment, child benefit remains a secure and certain income for mothers. There is also evidence that mothers are more likely to spend money on children. 9 Child benefit is also the passport to protecting the contributions record of parents with care. 7 Bradshaw, J. and Attar-Schwartz, S (2009) Fertility and Social Policy in Takayama, N. and Werding, M. (eds) Fertility and Public Policy: How to Reverse the Trend to Declining Birth Rates, Cambridge MA and London UK:MIT-Press. 8 Milligan, K., and Stabile, M.(2011) Do Child Tax Benefits Affect the Well-being of Children? Evidence from Canadian Child Benefit Expansions, American Economic Journal: Economic Policy 3:3, 175–205. 9 Lundberg et al. undertook an analysis of how family expenditure patterns changed in the UK when child tax allowances were abolished and transferred to wives in the late 1970s. Increased spending on children's clothes coincided with these changes in income distribution within the household (Lundberg, S., Pollack, R. and Wales, T. (1995) Do husbands and wives pool their resources? Evidence from the UK Child Benefit, University of Washington. http://www.chass.utoronto.ca/~siow/332/lundbergpollak-wales.pdf). For a review of the uses of child benefits in the UK see Bradshaw, J. and Stimson, C (1997) Using Child Benefit in the Family Budget, SPRU/The Stationery Office
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2.8. No moral hazard Universal child benefits are paid regardless of whether parents are in employment and regardless of their income. Therefore they do not contribute to either the unemployment trap or the poverty trap. Indeed because they are paid on top of earnings they contribute to increasing in-work incomes and therefore incentives to work. They help to make work pay. They also reduce the number of people with high effective marginal tax rates.
3. Child benefit packages and universalism in Europe and the US This paper uses the model family method to compare family benefit packages. This method was more or less invented by Sheila Kamerman and Al Kahn and its strengths and weaknesses have been reviewed elsewhere. 10 Briefly it uses national informants to estimate how a set of model families would be treated in each country by the tax and benefit system given various assumptions about their circumstances. The main strengths of the method are that it is a way of comparing like with like and able to produce quite up-todate comparisons. The main weaknesses of the method are that it provides a picture of the formal policy, not how the policies work out in practice, and it is illustrative rather than representative. In this section the data is from the CSB/MIPI data set 11 of the child benefit packages in 27 European countries and three US states 12 in June 2009. Fig. 1 presents the family benefit packages in € 13 purchasing power parities per month at June 2009 for a couple with two school aged children with one earner earning national average earning. The figure shows the difference in the amounts that would be received/ paid by such a family compared with a childless couple on the same earnings. It is therefore the contribution made by the state in respect of children. The package is made up of universal cash benefits, means-tested child benefits, child tax benefits, local tax benefits and housing benefits. The most common element of the package is universal child benefits in 19 of the 28 countries — Austria (Aut), Belgium (Bel), Bulgaria (Bul), Denmark (Den), Estonia (Est), Finland (Fin), France (Fra), German (Ger), Greece (Gre), Hungary (Hun), Ireland (Ire), Luxembourg (Lux) (missing data), Latvia (Lat), the Netherland (Net), Norway (Nor), Romania (Rom), Slovakia (Slk), Sweden (Swe) and the United Kingdom (UK). Of those that don't have universal child benefits eight countries — the Czech republic (Cze), Lithuania (Lit), Poland (Pol), Portugal (Por), Slovenia (Slv), Spain (Spa) and the US have a child tax allowance and in Cze, Lit the allowances perform a similar function in that they do not vary with income. There is only one country in the EU Italy (Ita) where the child cash benefit is entirely means-tested. There are a number of countries with both universal child benefits and child tax allowances — Austria, Belgium, Estonia, France, Greece, Latvia, Romania, and Slovakia. There are means-tested cash benefits still payable at this income level in Bulgaria, France, Italy, Lithuania, Netherlands, Portugal, Romania, Slovenia and the UK. A small number of countries have higher local taxes in respect of children (Estonia, Italy, Portugal and the three US states). Austria and Hungary still have housing allowances at this income for children. 10 Bradshaw, J. (2009) An international perspective on child benefit packages, in Kamerman, S., Phipps, S. and Ben-Arieh, A. (eds) From Child Welfare to Child Wellbeing: An international Perspective on Knowledge in the Service of Policy Making, Springer: Dordrecht. pp293–308. 11 Van Mechelen, N., Marchal, S., Goedemé, T., Marx, I., and Cantillon, B. (2011) ‘The CSB-Minimum Income Protection Indicators dataset (CSB-MIPI)’. CSB Working Paper No. 11/5. Antwerp: University of Antwerp. 12 Nebraska, New Jersey and Texas. 13 $1.24 = €1.00.
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1600 1400 1200 1000 800 600 400 200 0 -200
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Sln Slk Swe Spa UK Nebraska New Jersey Texas
Fig. 1. The structure of the child benefit package for a couple plus two, one earner average earnings. Purchasing power parity € per month June 2009.
housing allowance Local property or other non-incomes taxes Means-tested child cash benefit
Child tax allowance Universal child cash benefit Social Assistance
Fig. 2. The structure of the child benefit package for a couple plus two, one earner on a low wage. Purchasing power parity € per month June 2009.
Fig. 2 presents the same results for the same family but this time for a single-income couple with low pay — earning the minimum wage (in most countries) and in Denmark, Norway, Finland and Sweden half of the average earnings. There are a number of other countries with a means-tested child benefit at this income level (the Czech Republic, Poland and Spain). Some countries have a social assistance top-up for low-paid workers (Bulgaria, Czech Republic, Finland, Lithuania, Luxembourg, Portugal and Slovenia). More countries also have a housing allowance or housing benefit paid towards the rent at this income level which is more generous for families with children and, therefore, contributes to the child benefit package (Czech Republic, Finland, France, Greece, Hungary, Italy, the Netherlands, Poland and Slovenia). In a number of countries low
wage earners are not entitled to child tax allowances while average earners are. These include Estonia, Greece, Romania and Slovenia. 3.1. The value of the child benefit package There are two ways to assess the value of the child benefit package and they give rather different results. Fig. 3 shows the value of the package in purchasing power parities and as a percentage of average earnings. Using the PPP measure (on the left hand axis) Austria, Nebraska, Belgium, Slovenia and Germany have more generous packages and Romania, Lithuania, Portugal and Poland the least generous packages. When the comparison is made using the percentage of average earnings (on the right hand axis) Slovenia, Nebraska and
20 18 16 14 12 10 8 6 4 2 0 Aut
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Fig. 3. The level of the child benefit package for a couple plus two, one earner average earnings in ppps per month (left hand axis) as % average earnings (right hand axis). June 2009.
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average earnings
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Fig. 4. Variation in the child benefit package by earnings in purchasing power parities. Couple plus 2 children. June 2009.
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Sln Slk Swe Spa UK Nebraska New Jersey Texas
1600 1400 1200 1000 800 600 400 200 0
Lone parent +2
Couple +2
Fig. 5. The level of the child benefit package for a couple plus two and a lone parent plus two, both with one earner low earnings. Purchasing power parity € per month. June 2009.
Austria have the most generous packages by some way with Bulgaria, Texas and Hungary also up there with the leaders. In contrast Spain, Netherlands and Norway have comparatively low child benefit packages. Fig. 4 compares the child benefit package in purchasing power parities at low pay and average earnings and gives an indication of how targeted it is in different countries. The biggest differences are in the Czech Republic, Finland, France, Lithuania, Portugal, the UK and US NJ. There is very little difference in the value of the child benefit package in Belgium, Denmark, Estonia, Germany, Greece, Norway and Sweden. In Estonia, Latvia, and Spain the child benefit package is regressive providing more help to average earning couples with two children than the same family on half average earnings. Fig. 5 compares the level of the package in purchasing power parities for a lone parent and a couple with the same number of children both on low earnings. It can be seen that the package in most countries is more generous to lone parents than couples. This means that governments have made some effort within the package to recognise the extra costs or hardships of lone parents raising children alone. However there are a number of countries that make no concession to lone parents but treat them identically (Bulgaria, the Czech Republic, Greece, Ireland, Lithuania, Luxembourg, Poland, Portugal, Spain and the US states). It is also notable in the figure that the Nordic countries are all much more generous to lone parents in their child benefit package and they are also countries with generally more effective child maintenance regimes 14 Fig. 6 takes account of the costs of childcare. It shows how a lone parent with a preschool child would be supported if they worked full-time on low earnings but had to pay for full-time childcare of the most prevalent kind in each country. Now the child benefit package is negative in many countries (Czech Republic, Germany, Ireland, 14
Skinner, C., Bradshaw, J. and Davidson, J. (2007) Child support policy: an international perspective, Department for Work and Pensions Research Report 405, Leeds: Corporate Document Services.
Latvia, Poland, Portugal, Romania and the all three US states). In fact only in countries with childcare that is heavily subsidised does the child benefit package remain positive. 4. Child benefit packages and universalism in CEE/CIS countries Before the collapse of the Soviet Union and other state socialist countries in the Central and Eastern Europe and Confederation of Independent States (CEE/CIS) region, children were the focus of fairly effective social protection policies. Generally there was free health care, free education, a system of state pre-school child nurseries, full employment and universal child cash benefits. Of course it was not perfect, but it provided a level of security against extreme poverty. These systems were largely swept away during transition. • User charges were introduced for health • and for education. • State nurseries were closed and parents needing pre-school provision were forced to pay for it. • Unemployment grew and while some countries (re)introduced contributory unemployment insurance, it only protected those in the formal economy. In many countries in the region parents were forced to travel abroad to find work. • Family incomes fell with a shift from two-earner to one earner and no earner households. • Cash transfers to families with children became means-tested in most countries. No country in the Region now has a genuinely universal child benefit and in most countries the only cash benefit available to families with children is through so called ‘targeted’ social assistance (TSA). The World Bank has been behind these developments, providing technical and financial support and advice for such schemes, including the research base on child poverty. The data on poverty has been derived from Household Budget Surveys, only rarely have
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Means tested child benefit
social assistance
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Fig. 6. The structure of the child benefit package for a lone parent with one pre-school child, on low earnings. Purchasing power parity € per month.
children been the unit of analysis, and the poverty thresholds used have been very low based on the Bank's $x per day concepts. Typically TSAs are • very targeted often using a (highly complicated) quasi means test; • they only help the very poor; • very many very poor families are excluded either by the quasi means-test or because they do not claim; • the benefits are very low — not enough to lift families out of poverty, indeed (as will be seen) old age pensions commonly contribute more to child poverty reduction; • low paid working families are excluded; • and because the majority of poor children live in low income families in employment they have a limited impact on poverty; • They are often expensive and complicated to administer, open to corruption; • They undermine incentives to work; to pay and report remissions from abroad, and even marriage and household sharing; These schemes are espoused by the World Bank because they fit with the neo-liberal Washington consensus views about economics. They are attractive to national governments because they are able to pretend that there is a safety net and one which does not cost too much. Non means-tested child benefits exist in Belarus for under 3s Romania for lone parents Russia for under 3s Turkey for working families only Turkmenistan Uzbekistan for lone parents only
Fig. 7. The child benefit package for a couple plus 2 (2 years 11 and 7) as a proportion of net income of childless couple with one earner on half average earnings, June 2009.
Ukraine for lone parents only Tax benefits for children exist in Belarus Moldova Turkmenistan Means-tested child benefits for employed families exist in all countries except Armenia, Azerbaijan, Belarus Georgia, Kazakhstan Kosovo Kyrgyzstan Montenegro Turkey Uzbekistan In Turkmenistan only lone parents receive means-tested child benefits. In Tajikistan only school age children receive means-tested ‘cash compensation’ benefits. Bradshaw et al. (2010) 15 used model family methods to compare the child benefit packages in the region. In this case account was also taken of any formal charges that families would be expected to pay for standard health care and education as well as childcare. It was found that having taken account of charges for education and healthcare the child social protection package was negative for low paid families in all countries in the region except Ukraine, Bulgaria, Belarus, Turkmenistan and Serbia. That is the state effectively contributed nothing to the costs of raising children. (Fig. 7 includes UK and South Africa as two comparators from outside the region). Fig. 8 compares the level of social assistance payable to different out of work families in $Purchasing power parities. The amounts vary by family type and overall are more generous for families with two children. However social assistance is very low or nonexistent in Kosovo, Tajikistan, Georgia and Turkey. In Georgia families with one child do not receive more state support than childless couples (in spite of extra expenses for health and education). In Russia, Romania, Kosovo, Georgia and Tajikistan, pensioners receive at least double the support of families with children. The average spend on family benefit in the OECD countries was 2.23% % of GDP in 2007. The average spend on family benefits in the CEE/CIS region is less than 1% 16 and in many countries it was much less.
15 Bradshaw, J., Mayhew, E. and Alexander, G. (2010) Minimum Social Protection for families with children in the CEE/CIS countries, A report for UNICEF. 16 UNICEF (2009) Innocenti Social Monitor.
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9000 8000 7000 6000 5000 4000 3000 2000 1000 0 -1000
Couple
Cpl+1 aged 7
Cpl+2 aged 2 yrs 11 months, 7
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Fig. 8. Level of income on social assistance by family type in June 2009 in 2007 $US PPPs.
As a result of the recession the problem is getting worse as almost all countries suffer from increased levels of unemployment, reductions in income from remittances from parents working abroad, cuts in benefits and services and increases in the price of food and fuel. However there is evidence that some/most countries in the Region are beginning to emerge from the recession and moving once again into growth. Children did not benefit from the last period of growth and they will not benefit from the next unless policies are changed. Fig. 9 based on secondary analysis of micro data in six countries shows the child poverty rates before and after receipt of old age pensions and before and after receipt of targeted social assistance. It shows that pensions for old people are more effective than targeted social assistance in reducing child poverty – households with children benefit more from the presence of a pensioner than they do receiving targeted social assistance.
going to support families with children, it should be done with inkind benefits such as SNAP in the US. But most rich countries do not follow the US model — they have child benefits paid to parents in cash. They trust parents to spend their money in the interests of their children. No doubt they are influenced by the evidence reviewed above that that is what parents will do. 5.1.2. We cannot afford universal child benefit systems There are really two answers to this challenge. First can we afford not to tackle child poverty? There is a huge long term price 17 paid by countries who fail to invest in their children. Poverty is associated with poor health, low educational attainment, worse outcomes in employment, family instability, crime, squalor and so on. Can we afford to carry on like this? Second how much are countries spending on child benefits? Only 0.75% of GDP in the UK and very, very little in all of the CEE/CIS countries.
5. Conclusion So universal child benefits are dominant in the family benefit package of European countries. They also exist in Canada and have recently been introduced in Japan (though they are now threatened following the Tsunami). New Zealand and Australia have only income tested family benefits but the Australian scheme excludes the rich. In middle income countries only Argentina has a universal child allowance, though the Child Support Grant in South Africa has effective universal coverage. 5.1. What are the objections to universal family benefits? 5.1.1. They are misspent There is a popular belief that child benefits will be spent not on children but on drink or drugs or gambling, and therefore if we are 90 80 70 60 50 40 30 20 10 0 Armenia
Bosnia
With pensions
Georgia
Without pensions
Kosovo
Kyrgyzstan
With TSA
Serbia
Without TSA
Fig. 9. Impact of pensions and targeted social assistance on child poverty rates (2* food poverty except B and H and Serbia 4* food poverty).
5.1.2. It is much better to concentrate help on those children who need it most Better in what sense? It may cost less in benefit expenditure, though much more in administrative costs. However means-tested benefits have a number of key defects. • In some countries (but not all in Europe) they tend to be low benefits because they lack the political support of universal benefits. • They tend to be too targeted — concentrating on the very poor, whereas many more families with children are struggling financially. 18 • As a result they are not much more effective in reducing poverty rates or closing poverty gaps. • Not only is coverage poor but means-tested benefits suffer from low take-up as a result of ignorance of the existence of the benefit or
17 A series of studies has just been published by the Joseph Rowntree Foundation pointing up the huge costs of child poverty to individuals, government and society. The Exchequer costs are an estimated £12 billion per year and the costs in belowaverage employment and earnings levels are £13 billion per year. So the total estimated cost is £25 billion, £17 billion of which would return to the Exchequer were child poverty to be eradicated: ‘in the long term huge amounts would be saved from not having to pick up the pieces of child poverty and associated ills’ (Hirsch, 2008, p. 1). Hirsch, D. (2008), ‘Estimating the costs of child poverty: Roundup — reviewing the evidence’, York: Joseph Rowntree Foundation See also Blanden, J., Hansen, K. and Machin, S. (2010) The Economic Cost of Growing Up Poor: Estimating the GDP loss Associated with Child Poverty, Fiscal Studies, 31, 3, 289–312. 18 In the UK not true for child tax credit but true for housing benefit, council tax benefit and working tax credit.
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that one might be eligible, or stigma associated with receiving it. If only a small minority are eligible, then few realise that they are eligible. In the UK the latest HMRC analysis of the take-up of tax credits estimates 19 that £1.9 billion in Child Tax Credit and £2.3 billion in Working Tax Credit was unclaimed in 2005/6. The take up of CTC is higher for those on out-of-work benefits (91–93%) or those receiving WTC (90–93%) than it is for those just entitled to CTC (71–85%) or just the family element (68–75%). • Then there are the complexities in demonstrating eligibility, the need to produce documents. There have been noted problems of end-of-year overpayments and downward ‘in-year adjustments’ of Tax Credits. Such overpayments (both in-year and between years) have to be paid back by adjustments being made to future Tax Credit payments. Repayment of Tax Credit debts may lead to people having a lower minimum income than the schemes imply. • Means-tests are usually jointly assessed and with more fluid families this now makes the resulting benefits much less stable and regular in terms of income for children as they will get disrupted each time partnership changes. • The high marginal tax rates associated with means-tested benefits produce unfortunate behavioural effects. They reduce incentives
to enter and stay in employment, increase earnings more and to save. The USA has followed a different path — in terms of family benefits to that of European countries and the US model rather than the European one seems to have been very influential (via World Bank advocacy) in middle and low income countries. The result has been failure to provide adequate social protection for poor children. It is good that more international bodies — UNRISD, 20 OECD 21 and most explicitly the ILO 22 are now advocating universal social protection for children in developing countries. It could be a great example to the world if the USA would universalize its package. Garfinkel et al. 23 recommend that the simplest way to do it would be to make the federal child tax credit fully refundable (cost $21 billion) and remove the phase out for high income families (cost $6 billion). This may be “pie in the sky” in the context of the current deficit and the ceiling on borrowing but it presents a vision of a better system for children and something to work towards.
20
UNRISD (2010) Flagship Report: Combating poverty and inequality For example in the OECD (2009) DAC Policy Statement Making “The role of employment and social protection; making economic growth more pro poor.” http:// www.train4dev.net/fileadmin/Resources/Publications/ The%20Role%20of%20Employment%20and%20Social%20ProtectionMaking%20Economic%20Growth%20More%20Pro-Poor_Policy%20Statement.pdf 22 Townsend, P. (ed) (2009) Building Decent Societies: Rethinking the Role of social security in development, Palgrave and International Labour office. In this book Townsend argued that universal child benefit could be funded in developing countries by a Tobin tax. 23 Garfinkel, I., Rainwater, L. & Smeeding, T. (2010) Wealth and welfare states: Is America a laggard or leader? New York: Oxford University Press. They also propose an assured (guaranteed) child support benefit to help lone parents. 21
19 HMRC (2008) Child Tax Credit and Working Tax Credit Take-up rates 2005/06, London: HMRC.
Contents lists available at SciVerse ScienceDirect
Children and Youth Services Review journal homepage: www.elsevier.com/locate/childyouth
The case for family benefits Jonathan Bradshaw Department of Social Policy and Social Work, University of York, Heslington, York, YO10 5DD UK
a r t i c l e
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Available online 14 October 2011 Keywords: Child Family Benefits Comparison
a b s t r a c t The package of support for families with children in the USA is not terribly effective. The model of targeted social assistance is also the one that has been advocated by the World Bank in middle and low income countries. It is failing poor children. This paper uses comparisons of child benefit packages in the European Union and Central and Eastern European and Confederation of Independent States (CEE/CIS) countries derived using model family methods. It rehearses the arguments in favour of universal family benefits — the norm in the EU. It calls for a new approach in the CEE/CIS and USA. © 2011 Elsevier Ltd. All rights reserved.
1. Introduction Sheila Kamerman (of course with Al Kahn) never succeeded in persuading the United States to adopt a universal child benefit. Although Earned Income Tax Credit and SNAP have been much improved in level recently, both still taper out at low earning levels (well below a European poverty threshold) and they reached only 7.2% and 9.3% respectively of the US population in 2008. TANF is very variable between states but only helps 1.3% of the US families with children. 1 Although (as we shall see) the US is no longer a laggard in the level of its family benefit package for working families, its social assistance regime for workless families surely leaves much to be desired. 2 The overall effort in terms of expenditure on families in 2007 was 1.17% of GDP compared with, for example, 3.56% in the UK and 2.23% average for the OECD. 3 Therefore, for this mainly American audience, this paper is devoted to restating the case for family benefits and particularly universal child benefits. 4 There are two other motives. First universal child benefits are under attack in a number of countries in the face of the economic crisis and the deficit — for example they have been reduced in Ireland and will be withdrawn from higher rate tax payers in the UK. Second the US model has influenced the so called Washington Consensus which has determined the pattern of development of family benefit systems in low and middle income countries. As a result
there are hardly any middle income countries in the world which has a decent family benefit system and only one (Argentina) with a universal child benefit. The World Bank seems to hate universal child benefits (though they have recently come out in favour of universal minimum pension schemes 5) and the targeted social assistance schemes that have been developed in middle income countries with their advice are failing miserably. So this paper starts with rehearsing the arguments in favour of universal child benefits. It then presents some comparative data on the role of universal programmes in the universal family benefit systems in Europe (and the US) and then the CEE/CIS countries. Then it concludes. 2. Arguments in favour of universal child benefits 6 2.1. Horizontal equity They are recognition by the state of the burden being carried by parents in rearing children. The state and every citizen benefit from parents' sacrifice and have an economic and social interest in ensuring the best possible outcomes of the work of parenting. It is unfair for the single and childless to benefit but not to contribute. It is a wise investment by the state to ensure that they do contribute. Child benefit also redistributes resources over the life cycle and from one generation to another. It plays a considerable part in reducing inequalities. 2.2. Fertility
E-mail address: [email protected]: http://www-users.york.ac.uk/~jrb1/. 1 My information here came from a presentation by Professor Michael Wiseman in Sydney, Australia in April 2011. 2 Ben-Shalom, Y., Moffitt, R. and Scholz, JK (2011) An Assessment of the Effectiveness of Anti-Poverty Programs in the United States Institute for Research on Poverty, Discussion Paper no. 1392-11. 3 OECD (2011) Doing Better for Families, Paris: OECD. In 2004 cash transfers reduced the poverty rate of single parent families from 36.9% to 21.9% and for two parent families from 10.0% to 5.9% see Table 6. 4 It therefore revisits some of the arguments in Garfinkel, I. (ed) (1979) Income-tested Transfer Programs: The Case for and Against, New York: Academic Press. 0190-7409/$ – see front matter © 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.childyouth.2011.10.009
One reason that fertility has declined in so many countries is because of the direct costs (of feeding, clothing etc) and the indirect 5 Dethier, J-J, Pestieau, P. and Ali, R.(2010) Universal Minimum Old Age Pensions. Impact on Poverty and Fiscal Cost in 18 Latin American Countries Policy Research Working Paper 5292, World Bank. 6 For more arguments from a distinguished economist's perspective See also Atkinson, A. (2011) The case for universal child benefit in Walker, A., Sinfield, A. and Walker, C. Fighting poverty, inequality and injustice, Bristol: Policy Press.
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costs (interrupted employment, lost earnings and promotion foregone) of children. One way of mitigating those costs is to pay child benefit (though child benefits alone are unlikely to be effective in turning around falling fertility). 7 This is not an argument heard in Britain and probably not in the US but it is an important issue in many other countries, including France, despite the fact that France now has one of the highest fertility rates in the OECD. 2.3. Poverty In almost all countries children have a higher risk of poverty than the population as a whole and in many countries (including the US) they have a higher risk of poverty than pensioners (the other main dependent group). Child benefits play an important part in reducing poverty rates and poverty gaps. If we did not have child benefit in the UK child poverty would be 9 percentage points higher than it is before housing costs and 7 percentage points higher after housing costs. In fact Child Benefit is nearly as good as (means-tested) child tax credit in reducing child poverty — without child tax credit child poverty would be 12 percentage points higher than it is before housing costs and 10 percentage points after housing costs. 2.4. Well-being There is some recent Canadian evidence 8 that suggests that child benefit programmes had significant positive effects on several measures of both child and maternal mental health and wellbeing, as well as a few measures of child physical health. They also found effects of child benefits on test scores. 2.5. Take-up Unlike means-tested benefits and tax credits child benefit is claimed by almost all those entitled to it. One reason for this may be because they avoid stigmatising recipients as poor. 2.6. Administration Universal (or near universal) child benefit schemes are much easier and cheaper to administer than means-tested alternatives. In most countries a birth certificate is the only evidence necessary. 2.7. Benefit to mothers Child benefits paid to mothers or carers provide a source of income independent of the breadwinner. This is an important advantage in that it provides security where resources are not shared in the household, or where, as a result of unemployment or illness, there are no other resources available. In times of crisis in family life, such as separation, divorce, desertion or imprisonment, child benefit remains a secure and certain income for mothers. There is also evidence that mothers are more likely to spend money on children. 9 Child benefit is also the passport to protecting the contributions record of parents with care. 7 Bradshaw, J. and Attar-Schwartz, S (2009) Fertility and Social Policy in Takayama, N. and Werding, M. (eds) Fertility and Public Policy: How to Reverse the Trend to Declining Birth Rates, Cambridge MA and London UK:MIT-Press. 8 Milligan, K., and Stabile, M.(2011) Do Child Tax Benefits Affect the Well-being of Children? Evidence from Canadian Child Benefit Expansions, American Economic Journal: Economic Policy 3:3, 175–205. 9 Lundberg et al. undertook an analysis of how family expenditure patterns changed in the UK when child tax allowances were abolished and transferred to wives in the late 1970s. Increased spending on children's clothes coincided with these changes in income distribution within the household (Lundberg, S., Pollack, R. and Wales, T. (1995) Do husbands and wives pool their resources? Evidence from the UK Child Benefit, University of Washington. http://www.chass.utoronto.ca/~siow/332/lundbergpollak-wales.pdf). For a review of the uses of child benefits in the UK see Bradshaw, J. and Stimson, C (1997) Using Child Benefit in the Family Budget, SPRU/The Stationery Office
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2.8. No moral hazard Universal child benefits are paid regardless of whether parents are in employment and regardless of their income. Therefore they do not contribute to either the unemployment trap or the poverty trap. Indeed because they are paid on top of earnings they contribute to increasing in-work incomes and therefore incentives to work. They help to make work pay. They also reduce the number of people with high effective marginal tax rates.
3. Child benefit packages and universalism in Europe and the US This paper uses the model family method to compare family benefit packages. This method was more or less invented by Sheila Kamerman and Al Kahn and its strengths and weaknesses have been reviewed elsewhere. 10 Briefly it uses national informants to estimate how a set of model families would be treated in each country by the tax and benefit system given various assumptions about their circumstances. The main strengths of the method are that it is a way of comparing like with like and able to produce quite up-todate comparisons. The main weaknesses of the method are that it provides a picture of the formal policy, not how the policies work out in practice, and it is illustrative rather than representative. In this section the data is from the CSB/MIPI data set 11 of the child benefit packages in 27 European countries and three US states 12 in June 2009. Fig. 1 presents the family benefit packages in € 13 purchasing power parities per month at June 2009 for a couple with two school aged children with one earner earning national average earning. The figure shows the difference in the amounts that would be received/ paid by such a family compared with a childless couple on the same earnings. It is therefore the contribution made by the state in respect of children. The package is made up of universal cash benefits, means-tested child benefits, child tax benefits, local tax benefits and housing benefits. The most common element of the package is universal child benefits in 19 of the 28 countries — Austria (Aut), Belgium (Bel), Bulgaria (Bul), Denmark (Den), Estonia (Est), Finland (Fin), France (Fra), German (Ger), Greece (Gre), Hungary (Hun), Ireland (Ire), Luxembourg (Lux) (missing data), Latvia (Lat), the Netherland (Net), Norway (Nor), Romania (Rom), Slovakia (Slk), Sweden (Swe) and the United Kingdom (UK). Of those that don't have universal child benefits eight countries — the Czech republic (Cze), Lithuania (Lit), Poland (Pol), Portugal (Por), Slovenia (Slv), Spain (Spa) and the US have a child tax allowance and in Cze, Lit the allowances perform a similar function in that they do not vary with income. There is only one country in the EU Italy (Ita) where the child cash benefit is entirely means-tested. There are a number of countries with both universal child benefits and child tax allowances — Austria, Belgium, Estonia, France, Greece, Latvia, Romania, and Slovakia. There are means-tested cash benefits still payable at this income level in Bulgaria, France, Italy, Lithuania, Netherlands, Portugal, Romania, Slovenia and the UK. A small number of countries have higher local taxes in respect of children (Estonia, Italy, Portugal and the three US states). Austria and Hungary still have housing allowances at this income for children. 10 Bradshaw, J. (2009) An international perspective on child benefit packages, in Kamerman, S., Phipps, S. and Ben-Arieh, A. (eds) From Child Welfare to Child Wellbeing: An international Perspective on Knowledge in the Service of Policy Making, Springer: Dordrecht. pp293–308. 11 Van Mechelen, N., Marchal, S., Goedemé, T., Marx, I., and Cantillon, B. (2011) ‘The CSB-Minimum Income Protection Indicators dataset (CSB-MIPI)’. CSB Working Paper No. 11/5. Antwerp: University of Antwerp. 12 Nebraska, New Jersey and Texas. 13 $1.24 = €1.00.
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500 400 300 200 100
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Slk Sln Spa Swe Uk Nebraska New Jersey Texas
0 -100
Housing allowance
Child tax allowance
Local property or other non-incomes taxes
Universal child cash benefit
Means-tested child cash benefit Note: For Austria, Germany and the UK, means tested cash benefit include refundable child tax allowances.
1600 1400 1200 1000 800 600 400 200 0 -200
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Sln Slk Swe Spa UK Nebraska New Jersey Texas
Fig. 1. The structure of the child benefit package for a couple plus two, one earner average earnings. Purchasing power parity € per month June 2009.
housing allowance Local property or other non-incomes taxes Means-tested child cash benefit
Child tax allowance Universal child cash benefit Social Assistance
Fig. 2. The structure of the child benefit package for a couple plus two, one earner on a low wage. Purchasing power parity € per month June 2009.
Fig. 2 presents the same results for the same family but this time for a single-income couple with low pay — earning the minimum wage (in most countries) and in Denmark, Norway, Finland and Sweden half of the average earnings. There are a number of other countries with a means-tested child benefit at this income level (the Czech Republic, Poland and Spain). Some countries have a social assistance top-up for low-paid workers (Bulgaria, Czech Republic, Finland, Lithuania, Luxembourg, Portugal and Slovenia). More countries also have a housing allowance or housing benefit paid towards the rent at this income level which is more generous for families with children and, therefore, contributes to the child benefit package (Czech Republic, Finland, France, Greece, Hungary, Italy, the Netherlands, Poland and Slovenia). In a number of countries low
wage earners are not entitled to child tax allowances while average earners are. These include Estonia, Greece, Romania and Slovenia. 3.1. The value of the child benefit package There are two ways to assess the value of the child benefit package and they give rather different results. Fig. 3 shows the value of the package in purchasing power parities and as a percentage of average earnings. Using the PPP measure (on the left hand axis) Austria, Nebraska, Belgium, Slovenia and Germany have more generous packages and Romania, Lithuania, Portugal and Poland the least generous packages. When the comparison is made using the percentage of average earnings (on the right hand axis) Slovenia, Nebraska and
20 18 16 14 12 10 8 6 4 2 0 Aut
Bel
Nebraska
Sln
Ger
Texas
Ire
Fra
Uk
Ita
Swe
Fin
New Jersey
Net
Hun
Nor
ppps
Den
Slk
Gre
Cze
Lat
Est
Bul
Pol
Spa
Por
Lit
Rom
500 450 400 350 300 250 200 150 100 50 0
%average wage
Fig. 3. The level of the child benefit package for a couple plus two, one earner average earnings in ppps per month (left hand axis) as % average earnings (right hand axis). June 2009.
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Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Slk Sln Spa Swe Uk Nebraska New Jersey Texas
1600 1400 1200 1000 800 600 400 200 0
average earnings
half average earnings
Fig. 4. Variation in the child benefit package by earnings in purchasing power parities. Couple plus 2 children. June 2009.
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Sln Slk Swe Spa UK Nebraska New Jersey Texas
1600 1400 1200 1000 800 600 400 200 0
Lone parent +2
Couple +2
Fig. 5. The level of the child benefit package for a couple plus two and a lone parent plus two, both with one earner low earnings. Purchasing power parity € per month. June 2009.
Austria have the most generous packages by some way with Bulgaria, Texas and Hungary also up there with the leaders. In contrast Spain, Netherlands and Norway have comparatively low child benefit packages. Fig. 4 compares the child benefit package in purchasing power parities at low pay and average earnings and gives an indication of how targeted it is in different countries. The biggest differences are in the Czech Republic, Finland, France, Lithuania, Portugal, the UK and US NJ. There is very little difference in the value of the child benefit package in Belgium, Denmark, Estonia, Germany, Greece, Norway and Sweden. In Estonia, Latvia, and Spain the child benefit package is regressive providing more help to average earning couples with two children than the same family on half average earnings. Fig. 5 compares the level of the package in purchasing power parities for a lone parent and a couple with the same number of children both on low earnings. It can be seen that the package in most countries is more generous to lone parents than couples. This means that governments have made some effort within the package to recognise the extra costs or hardships of lone parents raising children alone. However there are a number of countries that make no concession to lone parents but treat them identically (Bulgaria, the Czech Republic, Greece, Ireland, Lithuania, Luxembourg, Poland, Portugal, Spain and the US states). It is also notable in the figure that the Nordic countries are all much more generous to lone parents in their child benefit package and they are also countries with generally more effective child maintenance regimes 14 Fig. 6 takes account of the costs of childcare. It shows how a lone parent with a preschool child would be supported if they worked full-time on low earnings but had to pay for full-time childcare of the most prevalent kind in each country. Now the child benefit package is negative in many countries (Czech Republic, Germany, Ireland, 14
Skinner, C., Bradshaw, J. and Davidson, J. (2007) Child support policy: an international perspective, Department for Work and Pensions Research Report 405, Leeds: Corporate Document Services.
Latvia, Poland, Portugal, Romania and the all three US states). In fact only in countries with childcare that is heavily subsidised does the child benefit package remain positive. 4. Child benefit packages and universalism in CEE/CIS countries Before the collapse of the Soviet Union and other state socialist countries in the Central and Eastern Europe and Confederation of Independent States (CEE/CIS) region, children were the focus of fairly effective social protection policies. Generally there was free health care, free education, a system of state pre-school child nurseries, full employment and universal child cash benefits. Of course it was not perfect, but it provided a level of security against extreme poverty. These systems were largely swept away during transition. • User charges were introduced for health • and for education. • State nurseries were closed and parents needing pre-school provision were forced to pay for it. • Unemployment grew and while some countries (re)introduced contributory unemployment insurance, it only protected those in the formal economy. In many countries in the region parents were forced to travel abroad to find work. • Family incomes fell with a shift from two-earner to one earner and no earner households. • Cash transfers to families with children became means-tested in most countries. No country in the Region now has a genuinely universal child benefit and in most countries the only cash benefit available to families with children is through so called ‘targeted’ social assistance (TSA). The World Bank has been behind these developments, providing technical and financial support and advice for such schemes, including the research base on child poverty. The data on poverty has been derived from Household Budget Surveys, only rarely have
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1000 500
-500
Aut Bel Bul Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Net Nor Pol Por Rom Sln Slk Swe Spa UK Nebraska New Jersey Texas
0
-1000 Housing allowances
Income tax
Social security
Local property tax
Universal child benefit
Means tested child benefit
social assistance
Childcare costs
Fig. 6. The structure of the child benefit package for a lone parent with one pre-school child, on low earnings. Purchasing power parity € per month.
children been the unit of analysis, and the poverty thresholds used have been very low based on the Bank's $x per day concepts. Typically TSAs are • very targeted often using a (highly complicated) quasi means test; • they only help the very poor; • very many very poor families are excluded either by the quasi means-test or because they do not claim; • the benefits are very low — not enough to lift families out of poverty, indeed (as will be seen) old age pensions commonly contribute more to child poverty reduction; • low paid working families are excluded; • and because the majority of poor children live in low income families in employment they have a limited impact on poverty; • They are often expensive and complicated to administer, open to corruption; • They undermine incentives to work; to pay and report remissions from abroad, and even marriage and household sharing; These schemes are espoused by the World Bank because they fit with the neo-liberal Washington consensus views about economics. They are attractive to national governments because they are able to pretend that there is a safety net and one which does not cost too much. Non means-tested child benefits exist in Belarus for under 3s Romania for lone parents Russia for under 3s Turkey for working families only Turkmenistan Uzbekistan for lone parents only
Fig. 7. The child benefit package for a couple plus 2 (2 years 11 and 7) as a proportion of net income of childless couple with one earner on half average earnings, June 2009.
Ukraine for lone parents only Tax benefits for children exist in Belarus Moldova Turkmenistan Means-tested child benefits for employed families exist in all countries except Armenia, Azerbaijan, Belarus Georgia, Kazakhstan Kosovo Kyrgyzstan Montenegro Turkey Uzbekistan In Turkmenistan only lone parents receive means-tested child benefits. In Tajikistan only school age children receive means-tested ‘cash compensation’ benefits. Bradshaw et al. (2010) 15 used model family methods to compare the child benefit packages in the region. In this case account was also taken of any formal charges that families would be expected to pay for standard health care and education as well as childcare. It was found that having taken account of charges for education and healthcare the child social protection package was negative for low paid families in all countries in the region except Ukraine, Bulgaria, Belarus, Turkmenistan and Serbia. That is the state effectively contributed nothing to the costs of raising children. (Fig. 7 includes UK and South Africa as two comparators from outside the region). Fig. 8 compares the level of social assistance payable to different out of work families in $Purchasing power parities. The amounts vary by family type and overall are more generous for families with two children. However social assistance is very low or nonexistent in Kosovo, Tajikistan, Georgia and Turkey. In Georgia families with one child do not receive more state support than childless couples (in spite of extra expenses for health and education). In Russia, Romania, Kosovo, Georgia and Tajikistan, pensioners receive at least double the support of families with children. The average spend on family benefit in the OECD countries was 2.23% % of GDP in 2007. The average spend on family benefits in the CEE/CIS region is less than 1% 16 and in many countries it was much less.
15 Bradshaw, J., Mayhew, E. and Alexander, G. (2010) Minimum Social Protection for families with children in the CEE/CIS countries, A report for UNICEF. 16 UNICEF (2009) Innocenti Social Monitor.
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9000 8000 7000 6000 5000 4000 3000 2000 1000 0 -1000
Couple
Cpl+1 aged 7
Cpl+2 aged 2 yrs 11 months, 7
Pensioner Cpl
Fig. 8. Level of income on social assistance by family type in June 2009 in 2007 $US PPPs.
As a result of the recession the problem is getting worse as almost all countries suffer from increased levels of unemployment, reductions in income from remittances from parents working abroad, cuts in benefits and services and increases in the price of food and fuel. However there is evidence that some/most countries in the Region are beginning to emerge from the recession and moving once again into growth. Children did not benefit from the last period of growth and they will not benefit from the next unless policies are changed. Fig. 9 based on secondary analysis of micro data in six countries shows the child poverty rates before and after receipt of old age pensions and before and after receipt of targeted social assistance. It shows that pensions for old people are more effective than targeted social assistance in reducing child poverty – households with children benefit more from the presence of a pensioner than they do receiving targeted social assistance.
going to support families with children, it should be done with inkind benefits such as SNAP in the US. But most rich countries do not follow the US model — they have child benefits paid to parents in cash. They trust parents to spend their money in the interests of their children. No doubt they are influenced by the evidence reviewed above that that is what parents will do. 5.1.2. We cannot afford universal child benefit systems There are really two answers to this challenge. First can we afford not to tackle child poverty? There is a huge long term price 17 paid by countries who fail to invest in their children. Poverty is associated with poor health, low educational attainment, worse outcomes in employment, family instability, crime, squalor and so on. Can we afford to carry on like this? Second how much are countries spending on child benefits? Only 0.75% of GDP in the UK and very, very little in all of the CEE/CIS countries.
5. Conclusion So universal child benefits are dominant in the family benefit package of European countries. They also exist in Canada and have recently been introduced in Japan (though they are now threatened following the Tsunami). New Zealand and Australia have only income tested family benefits but the Australian scheme excludes the rich. In middle income countries only Argentina has a universal child allowance, though the Child Support Grant in South Africa has effective universal coverage. 5.1. What are the objections to universal family benefits? 5.1.1. They are misspent There is a popular belief that child benefits will be spent not on children but on drink or drugs or gambling, and therefore if we are 90 80 70 60 50 40 30 20 10 0 Armenia
Bosnia
With pensions
Georgia
Without pensions
Kosovo
Kyrgyzstan
With TSA
Serbia
Without TSA
Fig. 9. Impact of pensions and targeted social assistance on child poverty rates (2* food poverty except B and H and Serbia 4* food poverty).
5.1.2. It is much better to concentrate help on those children who need it most Better in what sense? It may cost less in benefit expenditure, though much more in administrative costs. However means-tested benefits have a number of key defects. • In some countries (but not all in Europe) they tend to be low benefits because they lack the political support of universal benefits. • They tend to be too targeted — concentrating on the very poor, whereas many more families with children are struggling financially. 18 • As a result they are not much more effective in reducing poverty rates or closing poverty gaps. • Not only is coverage poor but means-tested benefits suffer from low take-up as a result of ignorance of the existence of the benefit or
17 A series of studies has just been published by the Joseph Rowntree Foundation pointing up the huge costs of child poverty to individuals, government and society. The Exchequer costs are an estimated £12 billion per year and the costs in belowaverage employment and earnings levels are £13 billion per year. So the total estimated cost is £25 billion, £17 billion of which would return to the Exchequer were child poverty to be eradicated: ‘in the long term huge amounts would be saved from not having to pick up the pieces of child poverty and associated ills’ (Hirsch, 2008, p. 1). Hirsch, D. (2008), ‘Estimating the costs of child poverty: Roundup — reviewing the evidence’, York: Joseph Rowntree Foundation See also Blanden, J., Hansen, K. and Machin, S. (2010) The Economic Cost of Growing Up Poor: Estimating the GDP loss Associated with Child Poverty, Fiscal Studies, 31, 3, 289–312. 18 In the UK not true for child tax credit but true for housing benefit, council tax benefit and working tax credit.
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that one might be eligible, or stigma associated with receiving it. If only a small minority are eligible, then few realise that they are eligible. In the UK the latest HMRC analysis of the take-up of tax credits estimates 19 that £1.9 billion in Child Tax Credit and £2.3 billion in Working Tax Credit was unclaimed in 2005/6. The take up of CTC is higher for those on out-of-work benefits (91–93%) or those receiving WTC (90–93%) than it is for those just entitled to CTC (71–85%) or just the family element (68–75%). • Then there are the complexities in demonstrating eligibility, the need to produce documents. There have been noted problems of end-of-year overpayments and downward ‘in-year adjustments’ of Tax Credits. Such overpayments (both in-year and between years) have to be paid back by adjustments being made to future Tax Credit payments. Repayment of Tax Credit debts may lead to people having a lower minimum income than the schemes imply. • Means-tests are usually jointly assessed and with more fluid families this now makes the resulting benefits much less stable and regular in terms of income for children as they will get disrupted each time partnership changes. • The high marginal tax rates associated with means-tested benefits produce unfortunate behavioural effects. They reduce incentives
to enter and stay in employment, increase earnings more and to save. The USA has followed a different path — in terms of family benefits to that of European countries and the US model rather than the European one seems to have been very influential (via World Bank advocacy) in middle and low income countries. The result has been failure to provide adequate social protection for poor children. It is good that more international bodies — UNRISD, 20 OECD 21 and most explicitly the ILO 22 are now advocating universal social protection for children in developing countries. It could be a great example to the world if the USA would universalize its package. Garfinkel et al. 23 recommend that the simplest way to do it would be to make the federal child tax credit fully refundable (cost $21 billion) and remove the phase out for high income families (cost $6 billion). This may be “pie in the sky” in the context of the current deficit and the ceiling on borrowing but it presents a vision of a better system for children and something to work towards.
20
UNRISD (2010) Flagship Report: Combating poverty and inequality For example in the OECD (2009) DAC Policy Statement Making “The role of employment and social protection; making economic growth more pro poor.” http:// www.train4dev.net/fileadmin/Resources/Publications/ The%20Role%20of%20Employment%20and%20Social%20ProtectionMaking%20Economic%20Growth%20More%20Pro-Poor_Policy%20Statement.pdf 22 Townsend, P. (ed) (2009) Building Decent Societies: Rethinking the Role of social security in development, Palgrave and International Labour office. In this book Townsend argued that universal child benefit could be funded in developing countries by a Tobin tax. 23 Garfinkel, I., Rainwater, L. & Smeeding, T. (2010) Wealth and welfare states: Is America a laggard or leader? New York: Oxford University Press. They also propose an assured (guaranteed) child support benefit to help lone parents. 21
19 HMRC (2008) Child Tax Credit and Working Tax Credit Take-up rates 2005/06, London: HMRC.