Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 14:

In page 65, between lines 8 and 9, to insert the following:

“Report on introduction of refundable tax credits to income tax system

24. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of refundable tax credits to the income tax system, options for their design, associated costs, and impact in addressing social and policy objectives such as reducing in-work poverty.”.

This amendment deals with the issue of refundable tax credits in the income tax system and is looking at options for their design, associated costs and impact in addressing social and policy objectives, such as reducing in-work poverty. Currently, introducing refundable tax credits would not be allowed in the income tax system and it cannot be accommodated under existing legislation. Whether someone is working part-time for a few hours each week or is in a very highly paid job, everybody who is in employment in Ireland has tax credits. Once an individual's tax liability has been calculated, these tax credits are applied in order to bring down their tax bill. However, if a low income worker does not earn enough to use their full allocation of tax credits, then they will not benefit from any income tax reductions introduced by the Government in the annual budget via increases to PAYE or personal tax credits.

Making tax credits refundable would be a simple solution to this problem. It would mean that the part of the tax credit that the employee did not benefit from would be refunded. Essentially, what this means is it would be paid at the end of the tax year to him or her by the Revenue Commissioners. The major advantage to making tax credits refundable lies in addressing the disincentives currently associated with low paid employment, and the main beneficiaries of refundable tax credits would be those low paid employees both in full-time and part-time work.

Most people with regular incomes and jobs would not receive any cash refund because their incomes would be too high and they would simply continue to benefit in the same way as before. However, for other people on low or irregular incomes, the refundable tax credit could be paid via a refund from the Revenue Commissioners at the end of the year and there may even be scope for more real-time delivery of the benefit, given the new real-time reporting system in place at Revenue in the past few years.

There are benefits to introducing refundable tax credits through the income tax system. They include that it would address the problem identified in a straightforward and cost-effective manner, there would not be any administrative cost to the employer and, crucially, it would incentivise employment over welfare as it would widen the gap between pay and welfare rates.

The Commission on Taxation and Welfare did look at refundable tax credits and its view was expressed a decade ago. It did not explore this proposal for reform in any great detail and, therefore, I believe it merits further consideration by the Department.

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