Why is reducing child poverty not a higher priority?

Ending child poverty is a defining challenge for our leaders: one they are failing.

Article by Dr Barra Roantree which originally appeared in the Irish Times (5th July, 2025). 

 

With billions flowing into the Government’s coffers from our corporation tax bonanza, there were some big winners from last year’s pre-election budget.

Among the biggest were the children of wealthy parents. While official statistics show that an average person receives about €100,000 in gifts or inheritances from their parents over a lifetime, Budget 2025 announced a €25,000 tax cut for the tiny fraction who receive more than €400,000.

Such giveaways contrast sharply with below-inflation increases to most social welfare payments over recent years. This has left core rates of payments worth less today than they were in January 2020: a remarkable situation given the strength of economic growth and the tens of billions in new spending announced.

Child poverty

These real terms cuts have contributed to stagnating incomes for the poorest households as well as stubbornly persistent levels of child poverty.

Research published by the ESRI in partnership with Community Foundation Ireland has shown that 250,000 children live in households below the poverty line after accounting for housing costs: more than 1-in-5 children.

A wealth of evidence shows this has enormous economic and social costs, with a lack of adequate resources compromising the ability of children to grow and thrive, even in adulthood.

The importance of reducing child poverty has been recognised by successive Governments, with ambitious targets set out in various plans, strategies and roadmaps since 1997.

However, we have seen no real progress for the best part of two decades. Shockingly, the share of children below the poverty line after housing cost is no lower than during the worst years of the financial crisis.

Priorities elsewhere

The reason child poverty persists is that whenever the opportunity comes to translate words into action there is always some higher priority.

This year that higher priority looks to be the hospitality sector, who have engaged in a sustained, well-funded lobbying campaign for even more preferential VAT treatment than they currently enjoy.

VAT is currently levied on accommodation, catering and restaurant services at a reduced rate of 13.5%, compared to the standard rate of 23%. Estimates by Revenue suggest this amounts to a tax relief of almost €2 billion per year.

Cutting the rate further to 9% would cost over €800 million more a year, sucking up most of the space available for new measures in the forthcoming budget.

This is despite the fact the sector is – by any objective measure – doing well. CSO data show that hospitality employment was 7% higher in the first quarter of 2025 than a year earlier, while figures from the Companies Registration Office show there were 11 new companies incorporated for every liquidation in the sector.

Even if the sector were struggling, a VAT cut makes little economic sense. Rather than supporting struggling small restaurants or cafes, the biggest beneficiaries would be large operators with the highest turnover. On what grounds can a multi-million tax cut for outlets like McDonalds possibly be justified?

Yet the Tánaiste’s recent elevation of this expensive and economically illiterate tax cut to a “solemn commitment” would seem to place it ahead of all other promises in the Programme for Government.

Second-tier of child benefit

This includes a pledge to “lift more children out of poverty, giving them the futures they deserve”.

Doing so would have immense benefits, but unavoidably requires spending money.

The most effective way of spending this money is to introduce a second-tier of child benefit. This would leave the current universal child benefit payment as stands but give an additional amount to lower-income families with children, replacing the inadequate patchwork of existing supports.

Recent estimates from the ESRI suggest such a reform would reduce child poverty by more than a quarter. This amounts to lifting over 50,000 children out of poverty at a cost of €772 million.

While substantial, this cost is about a quarter of achieving the same reduction by increasing the universal child benefit payment. Strikingly, it is also less than that of the planned cut to VAT for the hospitality sector.

This is the reason a second tier of child benefit has been called for since 2007 by a range of expert bodies, including the last Government’s Commission on Taxation and Welfare (which I was part of).

A second-tier of child benefit would mirror reforms implemented in the UK over the 2000s by then Chancellor Gordon Brown. Writing in these pages last year, he described the approach as a ‘progressive universalism’ that ensures “a floor of basic social rights for all, but with more support for those who need it most”.

Defining challenge

Brown was writing in advance of a keynote address to the Irish Government’s inaugural Child Poverty Summit.

He was introduced by then Taoiseach Simon Harris, who declared that “ending child poverty is a defining challenge for any leader”.

After 20 years without progress in reducing – let alone ending – child poverty, it is a challenge our leaders can only be said to be failing. Whether that failure defines their legacies depends on the decisions they take in the coming budgets.

Dr. Barra Roantree is Director of the MSc in Economic Policy at Trinity College Dublin.