4.4 MATERIAL DEPORTIVO NORMATIVA TÉCNICA.

Finally, in this chapter, we explore variation in the child benefit package which is due to family type – whether the family with children is a lone parent or a couple. In this case the value of the child benefit package is established in comparison with the net income of a single person. This is done in Tables 9.9a for a lone parent with one school age child at three earnings levels.

148

Table 9.9a

Child benefit package for a lone parent. Difference between

the income of a lone parent with one child aged 7 and a

single childless person on the same earnings. £ ppp per

month

After tax benefits and cash benefits only After housing costs and services

Case Case Case Case Case Case

Country 1 Rank 3 Rank 5 Rank 1 Rank 3 Rank 5 Rank

Australia 384 3 317 5 117 11 400 2 433 2 109 11 Austria 290 5 249 6 270 2 325 5 307 6 268 1 Belgium 58 17 95 16 95 13 51 20 90 19 90 14 Canada 125 13 166 13 93 14 114 17 154 15 82 16 Denmark 175 11 175 11 175 6 319 6 297 7 202 5 Finland 80 16 80 17 152 7 184 12 289 8 195 7 France 0 21 0 22 0 22 194 11 113 17 93 13 Germany 115 14 196 10 207 4 115 16 269 10 207 4 Greece 50 18 9 21 12 21 52 19 11 21 -31 22 Ireland 620 1 468 1 137 10 525 1 405 3 106 12 Israel 265 7 328 3 79 16 380 3 568 1 201 6 Italy 32 19 122 15 80 15 27 22 118 16 63 17 Japan 205 9 239 7 61 17 162 13 228 12 50 18 Luxembourg 168 12 123 14 294 1 138 14 93 18 264 2 Netherlands 307 4 173 12 197 5 249 9 162 13 190 8 N. Zealand 285 6 200 9 26 19 210 10 158 14 21 20 Norway 188 10 228 8 228 3 342 4 279 9 228 3 Portugal 113 15 24 19 23 20 111 18 -23 22 -25 21 Spain 20 20 20 20 58 18 31 21 14 20 47 19 Sweden -20 22 70 18 145 8 138 15 228 11 166 9 UK 436 2 359 2 111 12 310 7 354 5 111 10 USA 215 8 319 4 139 9 285 8 355 4 87 15

Case 1: Working 16 hours earning minimum wage Case 3: Earning half average female earnings Case 5: Earning average female earnings

In all countries (except France and Denmark after tax benefits and cash benefits only) the level of support for lone parents varies with earnings. However at low levels of earnings, Australia, Ireland, the Netherlands and the UK are, relative to a childless single person, and after tax benefits and cash benefits only, the most generous countries towards lone parent families. After services and housing costs the lone parent on average earnings is worse off than a single person in Greece and Portugal.

Tables 9.9b and c compare the child benefit package paid to a lone parent with that for a couple with the same number of children on the same earnings. The differences depend on the level of the earnings and whether the comparison is made before or after the impact of housing costs and services. At half average earnings and for a two-child family, lone parents are treated much more generously than couples in Austria, Denmark, Finland, Germany, Ireland, Japan and Norway. They are treated less generously than couples in Belgium, France, Italy, Luxembourg, Sweden and the USA. New Zealand, Portugal, Spain and the UK are neutral between couples and lone parents and Canada and France are close to neutral. At average earnings and with a one-child family Austria, Finland, Israel, the Netherlands, Norway, Sweden and the USA are among the countries that still favour lone parents. For Australia, Canada, New Zealand and the UK there is no difference between lone parents and couples with one child by average male earnings.

149

Table 9.9b

Comparison of the child benefit package for a lone parent

and couple on the same earnings. After taxes and cash

benefits. £ ppp

Half average male earnings (Case 2) Average male earnings (Case 4) Country Lone parent +2 Couple + 2 Difference Lone parent + 1 Couple +1 Difference

Australia 432 364 67 64 64 0 Austria 590 242 348 249 108 141 Belgium 167 221 -55 -36 75 -111 Canada 212 220 -8 30 30 0 Denmark 240 110 130 51 55 -4 Finland 317 182 135 152 58 94 France 101 103 -3 0 34 -34 Germany 344 189 154 43 95 -52 Greece 62 16 45 -15 15 -30 Ireland 398 278 120 58 101 -43 Israel 82 53 28 53 27 26 Italy 134 197 -63 18 52 -34 Japan 218 55 163 -48 39 -86 Luxembourg 210 398 -188 80 154 -74 Netherlands 154 130 24 112 57 55 New Zealand 203 203 0 0 0 0 Norway 316 117 199 188 59 129 Portugal 49 49 0 0 25 -26 Spain 0 0 0 3 23 -20 Sweden 147 192 -46 145 65 80 UK 417 417 0 111 111 0 USA 500 591 -91 62 54 8

After the costs of housing and services are taken into account at half average earnings table 9.9c shows that more countries have negative signs – including Belgium, France, Italy, Luxembourg, Portugal, Sweden, the UK and the USA. On average earnings Belgium is now over £100 per month less generous to a lone parent while Austria, Israel and the Netherlands and Norway are over £100 more generous to a lone parent.

There does not appear to be any pattern to these differences. One might hypothesise that those countries with high proportions of lone parents would be more generous to lone parents because of the salience of their need. Or that they might be less generous out of anxiety about the possible incentive and behavioural impacts of their policies. We shall explore this further in Chapter 11.

150

Table 9.9c

Comparison of the child benefit package for a lone parent

and couple on the same earnings. After taxes, cash benefits,

services and housing costs. £ ppp

Half average male earnings (Case 2) Average male earnings (Case 4) Country Lone parent +2 Couple + 2 Difference Lone parent + 1 Couple +1 Difference

Australia 540 472 68 64 56 8 Austria 659 412 248 248 107 142 Belgium 136 192 -56 -46 70 -115 Canada 201 197 4 30 19 11 Denmark 387 254 133 54 55 -1 Finland 459 347 112 195 101 94 France 214 214 0 5 28 -23 Germany 403 319 84 43 95 -52 Greece 68 21 47 -56 -28 -28 Ireland 325 225 101 47 75 -28 Israel 201 23 179 175 13 162 Italy 113 182 -69 6 45 -39 Japan 83 -75 157 -88 6 -94 Luxembourg 76 341 -265 61 129 -68 Netherlands 151 104 46 140 -2 142 New Zealand 175 166 8 4 -5 10 Norway 360 171 188 192 58 133 Portugal 1 46 -44 -47 -22 -25 Spain -6 -13 6 -3 11 -14 Sweden 325 296 29 173 86 87 UK 386 407 -21 125 111 14 USA 473 705 -232 62 -38 100

9.4

Conclusion

For families with school age children non-income-related child benefits and the income tax system are the main vehicles for delivering the child benefit package. There has been a shift, particularly in the Anglophone countries, from income-related child benefit to using the tax system instead. A few countries – Canada, Italy and New Zealand have abandoned their non-income-related child benefits in favour of tax (and social assistance based benefits). Housing benefits are an important component of the package at low-income levels in some countries. Education costs and health costs in most countries reduce the value of the package but only by modest amounts. As long as childcare costs are not involved the child benefit package is a positive contribution to family incomes in most countries. Figure 9.1 presents a summary of the structure of the package for a couple with two school age children with one earner on average male earnings.

151

Figure 9.1

Structure of the child benefit package

152

The structure and level of the child benefit package

However the most important conclusion of the comparisons of the levels of the child benefit package is that they vary within and between countries by family size and type, by earnings and by whether the comparison is made of the tax and cash benefit system only or after housing and service costs and benefits. This is illustrated for selective cases in Figures 9.2 to 9.4. Figure 9.2 shows how the package varies by family size (Table 9.2). France for example comes well down the league table in its child benefit for small families but is much more generous to families with three or more children. The UK in contrast is unusual in having a package that benefits one-child families relatively more generously.

Figure 9.2

Child benefit package by number of children.

Childless couple=100

153

The structure and level of the child benefit package

Figure 9.3 takes a standard family and shows how the child benefit package varies by earnings with Anglophone countries having considerably larger packages for low-earnings families , a number of countries having a standard amount regardless of earnings and France, Greece and Japan having packages that increase with earnings.

154

The structure and level of the child benefit package

Figure 9.4 shows how the package varies by family type. Luxembourg for example has the most generous child benefit package for couples with children at all family sizes and regardless of earnings but it does not have the most generous package for lone parents. Some countries are neutral to lone parents including the UK, others favour lone parents over couples – Austria is most generous to lone parents and most of the Nordic countries are also. Others favour couples over lone parents including the continental EU countries, except the Netherlands.

Figure 9.4

Child benefit package by family type at average earnings

The UK does comparatively well for small, low-earning families, lone parents not requiring childcare and families on social assistance. The implications of these variations is that it is unsafe to take one or a few standard families to represent a country’s child benefit package. It also represents something of a challenge to produce an overall summary measure of the child benefit package in each country – a task tackled in Chapter 11.

155

10 Average marginal tax

rates and notional

replacement rates

10.1

Introduction

The model family method makes it possible to calculate average marginal tax rates and notional replacement rates and thus the financial incentive structures facing families in different countries.

Average marginal tax rates are estimates of the proportion of extra earnings that would be foregone in extra direct taxes, loss of income-related benefits and extra charges. So for example if an earner increased their earnings from half national average earnings to national average earnings what would be the effect on their net disposable income? The marginal tax rates calculated here are average in the sense that they are the average over that range of increased earnings. For any extra £ earned they may be higher or lower. We use the phrase marginal tax rate despite the fact that not all of the impact on net incomes is the result of taxation – it includes extra charges for services and the loss of benefits. The marginal tax rate is an indication of the financial incentives facing an employee.

In contrast, the notional replacement rate is an indication of the financial incentives facing someone deciding whether to work. In this study the replacement rate is estimated by expressing the income that a family would receive on social assistance as a proportion of the income they would receive in employment at a given wage. Thus, it shows how much of their net disposable income in work is replaced by social assistance. It is notional in two senses. First the calculation is based on a given level of earnings, which may not be the actual earnings that a family was receiving or could receive. Second it is assumed that the source of income that would be doing the replacing is social assistance, whereas in many countries it would be more likely to be insurance-based unemployment benefits which are generally higher than social assistance. So it is the minimum notional replacement rate that we are showing here.