BUDGET 2008 | Tuesday, 16 October 2007

Children’s allowance: lost and found

Children’s allowance, once considered a pillar of the welfare state created by Labour government in the 1970s, was dying a slow natural death before yesterday’s budget.
But by giving a yearly supplement of Lm 107 per child to 25,000 families previously deprived of this benefit, the government has effectively reversed a decision taken in 1996 to restrict what was once a universal benefit to families where both spouses together earn more than Lm 10,270.
This decision had decreased the number of beneficiaries by 5,231 in one fell swoop. And over the past 11 years, the number of beneficiaries decreased further, by 19,106 from 52, 712 in 1996 to just 33, 606 in 2006.
Expenditure on children allowance also declined from Lm 20 million in 1997 to a meagre Lm 13 million in 2006. Now the expenditure is set to rise by Lm 5 as the number of beneficiaries rises by 25,000.
The decline is mainly attributable to a drop in the number of families declaring less than a joint income of Lm 10,000. A falling birth rate and a clampdown on benefit fraud also contributed to the decline.
Introduced in 1971 by Dom Mintoff as an allowance for the first three children of every Maltese family, the newly elected Nationalist government extended the allowance to cover any number of children in a family when elected in 1987.
But in July 1996, an income ceiling for eligibility for Children’s Allowance was set at Lm 10,270.
A ceiling of Lm 13,270 applied to families with more than three children. The amount was calculated after deducting National Insurance contributions.
This measure deprived a substantial section of the middle class from the benefit. It also penalised families in which both parents worked, thus serving as a disincentive for women who work. Since the ceiling was never revised to match inflation, a measure originally intended to exclude the very rich ended up penalising the lower middle class.
In fact, the means tested regime prevailing before yesterday’s budget favoured lower income families but penalised middle income earners – the income group which felt the pinch during the past three years of austerity.
By bearing the full brunt of the surcharge while getting little in the way of fiscal relief and benefits, lower middle income earners and even higher income earners with a large number of children experienced a decline in living standards.
While the very poor benefited from an exemption from the water and electricity surcharge without reaping any substantial benefit from last year’s revision of tax bands, many lower middle income earners complained that they could not even make ends meet by the end of the month.
This decline in living standards was accentuated by rising expenses, as education-related items like PCs and internet subscription became necessities.
Prior to yesterday’s budget, the children allowance paid was calculated on a percentage (ranging from six per cent for one child, nine per cent for two child families to 15 per cent for four child families) on the difference between Lm10,270 and the income declared of the previous year.
The mechanism is retained in this year’s budget; with one important difference, all children will receive the same allowance as the first child. Therefore a two child family will recieve 12 per cent instead of nine per cent on the difference between Lm 10,270 and the income declared of the previous year.
A typical working class family with two children under 16, earning an income of Lm 5,000 a year after the deduction of NI contributions, was eligible for an annual allowance of Lm 474.
But a similar family earning Lm 7,000 a year was only allocated Lm 294 a year. A similar family earning Lm 10,000 were eligible for just Lm 52 per annum.
Effectively a husband and a wife with two children, earning Lm 6,000 each, were excluded altogether.
Although the budget still discriminates in favour of lower income groups by increasing the benefit for 13,000 children born in low income families the budget gives a breath of fresh air to middle income families.
Now, a working class family with two children earning Lm 5,000 will be eligible for an annual allowance of Lm 632 while a similar family earning Lm 7,000 will earn Lm 392. A two child family earning Lm 10,000 will now earn Lm 214.
By reversing this state of affairs and catching the middle classes in the welfare net, the government is clearly attempting to address middle class discontentment.
In so doing, Prime Minister Lawrence Gonzi has also appropriated one of the cherished symbols of Old Labour, on the eve of an electoral clash with its new incarnation.

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