Table 3.1 shows whether tax benefits exist for families with children.
Table 3.1 Characteristics of tax credits and allow ances
Varies by
inc Em p Hrs No of Age of Type Ot h
Count ry Nam e children children How paid Who paid t o
Australia Family tax benefit A yes no no yes yes no no Fortnightly/ annually/ Main carer / main tax payer
Family tax benefit B yes yes no no yes no no with wages
Austria Tax credit (with or without children) no yes no no no yes no Through employer/ Usually mother or lone parent. Tax credit for couples (with children) yes yes no no no yes no yearly declaration Tax credits for one-earner
Tax credit for children1 no no no yes no no no couples are pad to the earner,
Tax credit for lone parents no no no no no yes no usually the father.
Belgium Tax credit no no no yes yes yes dis Granted to tax unit Tax unit
Canada Childcare Supplement for Working Families2 (U7) yes yes no yes yes no no
The Canada Child Tax Benefit for children yes no no yes yes no no
The Spousal Equivalent Tax Credit for lone parent yes no no no no yes no Tax payment reduced Lone parent
France Working tax credit yes yes yes yes no yes no In income tax Married: household Unmarried:
one parent
Germany Kinderfreibetrag (Children's tax allowance) yes no no no no yes no Granted to taxed person. Lone parents or married Haushaltsfreibetrag (lone parent allowance) no no no no no yes no No /low tax liability = paid couples: together. Kindergeld (children's tax credit) yes no no yes no no no the kindergeld as a child
benefit.
Greece3 Family tax credit no yes no yes no no no Various family-related tax Highest earner
allowances - family-related expenses deductible from taxable income
Ireland One parent family additional tax allowance no no no no no yes no In income tax Lone parent Israel Tax credit for families with children no no no yes no yes no Credit via tax system Both working parents
Italy Credits for children no yes no yes no yes yes Tax rebate two workers: both
Tax credit (under 3) no no no no yes no no Tax rebate Two worker, share tax credit
Japan Allowance for dependants no yes no yes yes no no Tax payment reduced Can choose whose tax should
Allowance for lone parent and widow yes no no no no yes no be reduced, usually highest
eaner. Continued
Inc
ome t
ax, s
oc
ial s
ec
urit
y c
ont
ribut
ions
and c
as
h benef
it
s f
or f
amilies
in employment
41
Table 3.1
Continued
Varies by
inc Em p Hrs No of Age of Type Ot h
Count ry Nam e children children How paid Who paid t o
Luxembourg Tax credit for dependent children yes no no yes no no no Deducted from income tax Family income Tax deduction for lone parents no no no no no yes yes Deducted annually Lone parent
Netherlands Children's tax credit yes no no no no no yes
Additional children's tax credit (low income) yes no no no no no yes
Lone parent tax credit (U27) no no no no no yes yes Annually Highest earnings claimant
Additional lone parent’s tax credit (U12) no yes no no yes yes yes Combination tax credit (couples) (U12) yes yes no no yes yes yes
New Zealand Family support tax credit yes no no yes yes no no Weekly via wage packet /
Child tax credit yes yes no yes no no yes annually via Inland Revenue. Principal care giver
Family tax credit yes yes yes no no no no
Spain Taxpayers with dependent children. (U25) yes no no yes yes no dis Deducted from tax Lone parent Working couples divide on pro rata basis. UK Working Families’ Tax Credit yes yes yes yes yes no yes Via employer/direct
Children's tax credit yes no no no no no no Offset tax liability Parent or guardian claiming
USA Child tax credit yes no no yes no yes no Part of tax refund cheque
Earned income Tax credit yes yes no yes no yes yes Annual refund cheque. Employee
Tax allowances for dependants yes no no yes no yes no
Inc=varies by income, Emp=varies by employment status, hrs=varies by hours worked, type=varies by family type, other=varies for another reason, dis = varies by disability
1 In the matrix, this has been treated as part of the familienbeihilfe (family allowance) because these are generally paid together. 2 Eligibility does not depend on families having childcare expenses.
3 There are a series of tax allowances in Greece that are specifically related to childcare or other households expenses regarding children. There are also tax tax credits that depend on the number
of children. However, due to the complexities of the tax formula, it is impossible to distangle these and present them separately.
Inc
ome t
ax, s
oc
ial s
ec
urit
y c
ont
ribut
ions
and c
as
h benef
it
s f
or f
amilies
in employment
42
Denmark, Finland, Norway, Portugal and Sweden do not have any tax concessions (other than those for childcare) for children and therefore have not been included in the table. In Portugal, whilst there are no allowances or tax credits for lone parents or couples with children, there are different tax rates according to the number of dependent children.
Germany, Japan and Spain have tax allowances for children and Austria, Canada, Germany, Israel, Italy, Netherlands, New Zealand, UK and USA have at least one tax credit that is directed at children. Allowances or credits (whether aimed at children or to parents) can also be designed to target large or small families by accounting for the number of children in the household, that is the more children the more valuable the allowance or credit. In this study, three countries have allowances and 13 have credits that take into account the number of children. Also, one country in our study, Ireland, does not provide general tax allowances for children but the income threshold at which tax begins to be paid varies with the number of children, so some families with children will be exempt from tax on incomes which would leave a family without children paying some tax.
3.4.1
Variation in tax benefits by age of child
Countries can also target families with older or younger children. Australia, Belgium, Canada, Italy, Netherlands and Spain target younger children – under threes in Belgium, Italy and Spain, under fives in Australia, under sevens in Canada, and under 12s in the Netherlands. Canada, Italy and Netherlands do this through separate credits aimed specifically at families with young children under the specified age (although Canada incorporates an addition in the Canada child tax Benefit for families who did not claim the ‘childcare’ deduction16). Japan, New Zealand and the UK target older
children. Japan has higher allowances for children aged 16-22 (children over 23 receive the same amount as under 16s); New Zealand increases the amount credited with age and the UK has marginally higher amounts for 16-19 year olds compared to under 16s.
3.4.2
Variation in tax benefits by family type
Countries can redistribute income not only from families without children to those with children but between different types of families with children. To whom the adjustment is targeted can vary – on the one hand some countries base their arrangements on the argument that couples with children should pay less tax compared to lone parents because there are two adults to support. Others base theirs on the argument that lone parents with children do not have financial support from a partner and therefore should be treated more generously than couples. Austria, Canada, Germany, Ireland, Japan, Luxembourg and the Netherlands have a system of tax allowances or credits aimed specifically at lone parents. In the Netherlands, lone parents can only receive the additional credit if they are in paid work; in Japan, the allowance varies between lone mothers and lone fathers and in Luxembourg the lone parent can only receive the allowance if the child receives no maintenance payments. Austria, Belgium, France, Germany (to be abolished in 2005), Israel, Italy and the USA also have a tax allowance or credit that varies depending on whether or not the household is a lone-parent household.
3.4.3
Variation by number of earners
Closely related to the above is the number of earners within a household. It can be argued that a couple (with children) with one earner should be treated equally to a lone parent on an equivalent income. However, the effect of treating all one-earner families equally, regardless of family type, can create a disincentive for both parents in a couple to undertake paid work. Therefore, it can be argued
16 Eligibility for this is not dependent on families having childcare expenses.
43
that a couple with only one earner should be treated more generously vis-a-vis lone parents since there are two adults to support rather than one. France and Italy have tried to strike a balance between the two standpoints by varying the amount credited by number of workers, thus providing some help for two-earner couples but treating one-earner families equally, regardless of family type. Countries that aim certain credits to families with only one earner or allow only families with one earner to receive the tax credit are Australia, Austria, Canada, Greece and Japan.
The remaining countries do not stipulate whether both parents in a couple can work. Indeed, the Netherlands and USA favour couples through certain credits or allowances. The Netherlands has a separate tax credit for couples which allows both parents to work, although it also has a lone parent and additional lone parent tax credit. The USA, whilst it does not provide any help for lone parents, since 2001 it has increased the Earned income tax credit (EITC) benefit for married parents who have incomes above the income level at which EITC begins to phase out. Austria also has a separate tax credit for couples but this is targeted specifically at one-earner households.
3.4.4
Variation by hours w orked
Only three countries in this study (France, New Zealand and the UK) take into account the number of hours worked. In New Zealand, only low-income families who work more than 20 hours for a lone parent and 30 hours for a couple are eligible for the family tax credit. In the UK, to receive the Working Families’ Tax Credit (WFTC) one parent must be working for 16 hours or more and those working for 30 hours or more receive a bonus (they must also be on a low income).
3.4.5
Who receives tax benefits?
The impact of tax allowances and credits depends on the form of administration and who in the family actually receives the concession. Some credits are directly refundable. Indeed, all the Anglophone countries allow certain recipients to receive their credits directly. Australia, Canada and New Zealand give recipients the option of how it is paid. The USA allows those with low-income workers to receive their credit directly. In addition, low-income recipients of any tax credit in Austria and the children tax credit in Germany can receive their credit directly.
In addition, who the credit/allowance is paid to can have a large impact upon child poverty, since it is often the mother’s resources that benefit the child (O’Donogue and Sutherland, 1999). Canada pays the credits to the mother by default whilst Australia and New Zealand pay it to the main carer. In the UK WFTC can be paid directly, rather than in the wage packet. Also it can be paid to the non-working member, or carer, in a couple where the other partner is working In Austria, tax credits are usually paid to the mother or lone parent; only tax credits for the one-earner couples are paid to the earner, usually the father. On the other hand, the credit/ allowance is paid to the highest earner (usually the father) in Japan, Greece and the Netherlands. In France, Germany, Italy and Spain both earners in a couple receive the credit/allowance or the credit/allowance is shared.