Oireachtas Joint and Select Committees
Thursday, 28 June 2018
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Discussion Paper on Taxation: Deputy Marc MacSharry
I thank the Chairman and members for the opportunity to discuss this matter. The introduction and implementation of a child tax credit or allowance of up to €1,654 per annum for each child up to a maximum of four, even where a worker does not have any tax liability, as is the case for many low-income workers, would be very progressive. A minimum wage worker with three children earning €18,958 from working 39 hours per week would receive a tax credit or allowance of €4,962 which would in turn increase his or her net income by 26% to €23,920. An identical family with a gross income of €70,000 would gain only 10%.
I set about compiling this analysis based on the experience of dealing with many families depending on social welfare and many more who are depending on low-income employment. Many here will have had similar a experience to me through their own constituency work. Through the years it has become clear that many issues exist which must be addressed to eliminate discriminatory quirks in both our welfare and taxation systems while incentivising work and also providing the necessary supports to families, whether working or not.
As the committee will be aware, in Ireland wages and our taxation system do not differentiate between workers with or without children. This is in contrast to the welfare system where there is an increase paid for every qualified child in addition to a personal payment and an increase for a qualified adult dependant if applicable.
The costs associated with raising a child as having a significant impact on the ability of a worker to bear the burden of taxation were acknowledged as far back as 1799 when a tax on income was first introduced. Any working parent of a child was consequently entitled to relief. The method varied through the years but working families with children continued to pay less than those without until 1986 when the then child allowance was abolished. As things stand our taxation system provides a tax credit for an adult dependant but gives no recognition to children or the associated costs of raising a family. Our welfare system, on the other hand, provides €1,654 in additional support per year per child for no fewer than 27 different welfare schemes together with likely qualification for a number of other benefits such as medical card and housing support among others.
This paper outlines some of the many anomalies that exist in both our tax and welfare systems. The analysis shows clearly, for example, that a low-income worker, such as a worker on the minimum wage, is better off choosing not to work and claiming jobseeker's benefit or allowance if he or she has a number of children. Clearly, such a situation is unsustainable. One such example is a married couple with three children. If they are on jobseeker's allowance of €17,129, it is further supplemented by €1,654 for each child, a total of €4,962, giving an overall total income of €22,091.
They would also qualify for secondary benefits in terms of the medical card, housing support, etc. If we looked at the equivalent family working on the minimum wage for 39 hours per week, its income would be €18,958. The family gets no allowances of any description for their children, as with the welfare system, and so €18,958 is the family's total income. This indicates to me - I am sure many of us have come across it - that it incentivises people in those circumstances not to work as opposed to seeking out gainful employment. The research outlines much of the detail regarding existing welfare supports, anomalies therein relative to working families and the clear need for tangible action to address the problem in a way which is fair and supportive to those often referred to as the working poor - in other words, low and middle-income workers.
On foot of the research reflected in this paper, my conclusion is to propose the introduction of a child tax credit or allowance thus ensuring that our taxation system treats children in the same way as our welfare system. For the purposes of preparing a paper only, I pitched the child tax allowance or credit at the same level as the child social welfare qualifying payment of €1,654 per child. However, to seek to do so at that level in one year or in a short period of years would, in light of the enormous cost of more than €1 billion per annum, be reckless. It is worth considering that if we accept the principle, which is what I am seeking to promote, of the need to introduce such a child tax credit or allowance, we could build towards it over time. The research carried out by my team and me included a detailed analysis of the cost of such a child tax credit or allowance with the use of excellent support by way of data provision from the Department of Employment Affairs and Social Protection, which I would like to acknowledge. Our estimate is that 638,000 children under 18 will benefit at a total cost at just over €1 billion per annum with the credit set at €1,654 per child. A start might be a Government committing to €100 million to €150 million per annum to such a measure, which, subject to sustainable resources, could be built to mirror the child qualifying social welfare allowance over the lifetimes of two to four Administrations, namely, ten to 20 years.
Working families are the bedrock of our nation. The removal of existing anomalies and the provision of adequate support through the reform and reorganisation of parts of our taxation and welfare systems are essential. The status quoshould not and cannot be allowed to continue. Following research, it is my considered opinion that this group should be given a level of priority and should benefit from changes to tax bands and tax rates over the coming period via the introduction of the proposed child tax credit or allowance. As the language of surplus slowly begins to replace that of deficit and given the emergence of growing fiscal space, the time is right to consider the implementation of such measures. I very much hope that this paper can act as a catalyst to commence a meaningful discussion and can lead to the necessary and overdue acknowledgement of working families with children in our society.
I again thank the committee for its invitation. I hope it can concur with the merit of this proposal and advise the Departments of Finance, Public Expenditure and Employment Affairs and Social Protection of its support for the adoption, in principle, of the need to incentivise work while supporting those who cannot work with an appropriate child tax credit or allowance.
I welcome my colleague, Deputy MacSharry, and thank him for his opening statement. Everyone has had sight of the discussion paper prepared by Deputy MacSharry. I genuinely commend him on this initiative. It is very evident to anyone that a huge amount of work has gone into this proposal. The research is excellent. It certainly contains innovative thinking and is very well presented. This is what a mature parliament does. Proposals should come from parties and individuals within parties. What the Deputy has asked for is that we engage in an open and honest discussion about the merits of what he has proposed and I am happy to do that.
The Deputy has chosen the tax credit model. If the issue we are seeking to resolve is the trap whereby people on social welfare chose not to work because it is not worth their while - an issue we have all come across in the course of our constituency work - why is Deputy MacSharry proposing this model as a opposed to, for example, one involving secondary benefits, such as helping people to keep their medical cards, tackling child care costs and the issue of people losing the housing assistance payment if they attain a certain level of income from employment? Could Deputy MacSharry set out the rationale for opting for a tax credit-based approach in respect of each child as opposed to dealing with secondary benefits to make it worth somebody's while to work?
In the first instance, it is because this works in other countries. It is in place in the UK, the US, Canada and some other countries. In addition, we would be giving people the money directly by way of savings in terms of taxation or because, due to the structure of it, if somebody had no tax liability, it would in effect be a payment. This happens in Northern Ireland. We would be giving the money directly to the people who need it. While we all acknowledge that there are issues with child care and the cost of education, which was raised in the Dáil yesterday in terms of parents having to contribute, we would be giving the money directly to the people. As all of us here and those in the committee room next know all to well given the sort of administrative costs involved, if we start saying "Let's deal with the medical card issue, child care and all of that", it will cost us a great deal more. We would be giving the money directly to the people to ensure that it has the maximum impact in terms of what it is intended for rather than having to redesign the medical card scheme overall. There are anomalies in all of the schemes and these probably need to be addressed. However, putting the money where it needs to be is why I felt that the tax credit or allowance was the way to go. Ultimately, it is about the things it will bring in apart from the secondary benefits anomaly. It is also money. If people feel their brother or neighbour is earning more in cash per week for doing nothing, there is a psychological impact in terms of dignity.
They will not benefit from this. One could argue that they do not have the costs associated with child rearing but how would Deputy MacSharry address the question that it is unfair for those people to not get a tax break? What about the argument that this would result in taking far more people out of the tax net? The general view among some international bodies is that it is a mistake to take more and more people out of the tax net completely and that everyone should make some contribution, however small. Would Deputy MacSharry have any concerns on that front?
I would not because it is dealing with an anomaly in society whereby there are increasing costs for families, not just child care but a whole range of issues relating to raising children. The taxation system is used in a variety of different way. For example, one could argue that we are all subsidising the knowledge box in terms of corporation tax but, obviously, Marc MacSharry or Joe Bloggs is not deriving a direct benefit from it. I am not saying we should levy taxation to increase taxation to pay for this. While it is pitched at the high rate of €1,654, I am at pains to point out that it would be reckless to seek to do this in a single year. Rather, it would be dependent on the sort of fiscal space that is available to us. Within the two to one split that is being employed in terms of budgeting, we would seek to ask whether we can afford €100 million or €150 million per year for this within the existing space. Subject to sustainable resources, we would then add to it as time passes.
The fairness model is somewhat of a red herring because there are so many different things within the Taxes Consolidation Act that may be there to benefit different sections of society in quite an honourable way. This is just another one. I certainly would not be seeking to penalise or add to the tax burden of people who do not have children. We would provide a measure like this from our existing revenue base.
What level of priority would Deputy MacSharry afford this idea in terms of the reduction in universal social charge, USC, for everyone, with an emphasis on middle-income earners? It must be remembered that our entry point for the marginal rate of tax is quite low by international standards. Where would Deputy MacSharry rank this proposal in terms of priority with those or would he see progress on this being made in parallel with reductions in income tax generally?
As I said in my opening statement, I would like to see this given a level of priority similar to those other matters highlighted. It is the principle I would love to see embraced. That is why the document has no party logo, it was not written in a political context and when I published it in April, I sent it to all Members of the House, all committees and all Departments.
I would love to see general acceptance that this is a route we need to go. It is not that it trumps the need for the abolition of or a reduction in USC or the movement of bands, rather that it exists in parallel and subject to space. Prioritising the taxation system support, in the same way as the welfare system, to the cost of raising children is a basic principle that was embraced from 1799, the beginning of taxation in this country, right up to 1986. We would serve the nation well if we re-embraced that principle.
I thank Deputy MacSharry and commend him and his team on the work they have put into this. Obviously, I agree with many of the sentiments in terms of the working poor, as the Deputy referred to them, and families that are really struggling.
I am sorry about that.
Obviously, a lot of work has gone into this and, as Deputy MacSharry stated, it has worked in other countries. The beauty of child benefit is that it reaches all children on the basis of equality. I am not sure that one can say that Deputy MacSharry's proposal would treat children the same, that one can do that the same in the welfare system as in the tax system. If we look at table C which shows the impact on a family earning €70,000, they would have an extra €5,000 after this charge. I would not call that a progressive change. When we look at the percentages, the minimum wage workers could earn 26% extra and they stand to gain the €5,000. Would that be right, in the case of the person on €70,000 and the person on the much lower wage?
No. Those on the minimum wage would be 26% better off in terms of their net income. As a proportion of their income, it would be much less for a higher income but they would be getting the same amount.
Let us say a Government was to commit €150 million to this. With 638,000 children, that would equate to approximately €240 per child. If one has three children and one's salary is €70,000, one will have a tax allowance of €240 per child. The person on the minimum wage is likely to pay little or no tax, and will get that in cash. In some countries, it is called a refundable tax credit.
It would be a bit difficult in how it would apply to the tax system. Would it have any impact on a person's medical card eligibility, the eligibility for SUSI grants or any such matters? Has Deputy MacSharry crosschecked against all of those issues?
I have not. Obviously, there is a range of secondary benefits, especially the medical card, that many of us would argue need to be addressed. We did not include SUSI qualification. Senator Conway-Walsh will see in the other tables we included quite a number of secondary benefits in the analysis. For example, we include FIS. We did not include eligibility for SUSI grants but how SUSI is allocated is something we should focus on in any event. It is a good, reasonable question. I would not like to complicate a support such as this for children with a flaw in the eligibility criteria for SUSI, for example, where I am sure there are issue - we all have come across them.
I certainly appreciate what Deputy MacSharry is trying to achieve with this paper. My party will have a further look at it, in terms of some of the positive externalities and also the negative ones that might surround it.
I thank Deputy MacSharry for the work that he has put into it. I appreciate that the Deputy is presenting it in a non-party way.
Absolutely. I am not here today in that way. Much of my work might be highly partisan or highly political. This is not here to embarrass the Government or promote Opposition parties or anybody else to put forward particular proposals. It is merely that here is a principle I would love us to collectively embrace. Ideally, I would love to see something in the programme for Government, all parties' manifestos and all Independents' in the future. As a principle, it can assist with many of the issues in terms of costs of raising children.
I thank the Chairman for the opportunity to say a few words.
I have watched this document with interest and I have come today to support what Deputy MacSharry has said, the principle of the concept. There are too many in the squeezed middle we often talk about who are not in a position to educate their family. The struggle of families who do not get SUSI grants and must provide education, particularly up to third level, for their children works out costing between €12,000 and €14,000 annually. Historically, in my own family, there were four of us in college at one time. While there is a perception that some families have good incomes and a reasonable degree of wealth, the reality is, if they are not entitled to some form of tax break, some are struggling.
If we are talking about it as a child tax allowance, it is my firm belief - in the same way child benefit is to help families, particularly to get through the education system - the concept here needs to be seriously looked at. It could be tied into suggestions that we made previously about providing people who are struggling to make savings and are living hand to mouth, with incentives such an SSIA facility or an incentive for children to save as they grow older. For example, I have mooted to Deputy Michael McGrath previously the issue of not charging DIRT on students' accounts when they go to college. It is a simple measure and it would not cost a great deal. We need to look at the principle. Education, whether in a trade or in a university, is everything. That squeezed middle needs to be considered for some form of incentive in the tax regime; that will be a learning for life for their children, for example, in taking up the badly needed trades. This is one of the hidden problems to a large degree.
As a public representative, I meet people daily who have problems with social welfare and are looking for additional support. We all recognise those people need help. However, there is a middle-income earner out there who needs an incentive. I fully support Deputy MacSharry's principle and it should be thrashed out.
This is a classic issue that should go to the Committee on Budgetary Oversight. I take it Deputy MacSharry cannot be 100% sure that everything outlined in this document is correct but it should be analysed by the Committee on Budgetary Oversight and offered as a suggestion.
I welcome Deputy MacSharry. This is a very good discussion document and I compliment him on bringing it forward. I am not so sure why he threw in the knowledge box because I believe only a handful of companies have availed of this and only €5 million or €6 million have been paid in corporation tax, so it would not make much of a dent in the €1 billion that this is going to cost.
This is a very good discussion document but I would not be competent to make too many remarks on it because social welfare and taxation are two very big areas and there are many schemes. I am delighted the Deputy has brought forward a paper for discussion that brings all those together. I would welcome the amalgamation of more of these schemes. When one looks at schemes and brings them forward, there is always somebody who will fall off the wagon. Has the Deputy analysed any areas where there will be people who will fall off the wagon?
We try to avoid that to the extent that is possible. I am not precious about the contents of this, in the sense that if this can be a catalyst to begin a meaningful debate on the tax allowance and credit for working families with children, my ambition will have been realised. This went to all of the committees but this is the only one that came back. I would love if the Committee on Budgetary Oversight ran with this and if the Department of Finance and the Department of Employment Affairs and Social Protection responded. The only Secretary General who wrote back, ironically, was the Secretary General at the Department of Education and Skills who probably would not have much input into this area at all. However, I would like it to be examined. I would not be caught up in this regard. There is a very significant cost in terms of where we have pitched it, but it would be reckless to set out to do this in a short number of years. It is about embracing the principle and seeing what can be afforded and as resources are freed up or become more available on a sustainable basis, one could then build it at the level of the allowance for the welfare recipients.
What the Deputy is saying is that with the €1 billion potential cost, and if there was a commitment given of €100 million or €200 million in year one or year two, he would change the whole system over a period of time. Is that what the Deputy is really saying?
One would not be changing the whole system. One would be introducing a tax credit allowance at whatever level was affordable in terms of the Exchequer. I was proposing that €150 million would equate to an allowance or tax credit per child of about €240. That would be the level, if we could afford €150 million on an annual basis. That is a huge amount of money in the context of the budget and what is available. It is not about changing the whole system but introducing a new measure which would channel resources directly to the people who need them, which is cash in hand, in order to meet the bills and costs of raising a child.
Can I raise an element of due diligence? Is there a danger that this could create a poverty trap and could be abused by employers? What the Deputy is proposing to do might be more correctly dealt with through family income supplement, FIS, and through amending the FIS rules? There is a danger here that if someone has a low-paid job and has children, the employer will use this proposal as a subsidy and continue to pay that person a low wage. It would be better to allow a system where social welfare deals with people who need assistance, where they are fully unemployed or where they are on FIS. Perhaps FIS needs to be amended rather than looking at this solution. The Deputy is differentiating between categories. He is saying that someone who is unemployed can do this through the social welfare system and someone who is working can do it through the tax system. I am asking about the unintended consequences. I am wondering if what the Deputy is looking to do here could be more correctly and efficiently done through reform of the FIS system.
I do not think so. The issue of rogue employers is an issue now, where employers are taking advantage of the fact people are entitled to FIS. That argument will continue regardless. This is not recommending the abolition of FIS. FIS would remain, where necessary. I respectfully disagree with the Senator's point on that. I do not think it would be any more or any less of an incentive to an employer, after the introduction of something like this, to take advantage of employees any more than is already happening. That is an issue of enforcement and an issue for society where unscrupulous employers would price the cost of labour by taking into account what they could take off the State in terms of supports and instead of paying-----
Not a thing other than to thank the committee very much for allowing me the space to come in. I am wearing a non-political hat in the context of this proposal. A win for me or a win for children would be if the committee, in its own time, was to decide to refer this to the Department and ask if it could examine the principle of this in the context of budget preparations into the future. Perhaps the Committee on Budgetary Oversight could do so also.
I thank the committee again and hope that members in their work, politically or otherwise, might promote the principle of the introduction of the recognition of the costs of raising a child in our taxation system in the same way as we do in our welfare system.
The principle of producing a document like this for discussion, without a political tag on it, is one that I would subscribe to. Each one of us, regardless of our politics, must prompt each other to think beyond the box, and not to be controlled either by parties or by bureaucracy in the delivery of that personal message, policy or point of view. Members from other parties are here this morning. I firmly believe the committee structure should allow for this type of examination of policies and then parties can take them on. I refer to Deputy MacSharry's figures and proposals. It is good that he has said that getting the principle of this accepted is something that should be encouraged. I compliment the Deputy on the very professional way this is presented in terms of the analysis provided for us.
With the agreement of members, I recommend that we send this to the relevant Departments - it may be only the Department of Finance but if there is another one, fair enough - for their views, costings and commentary on it. We should also send the transcript of this meeting to the Departments and to the Committee on Budgetary Oversight to encourage them to analyse the document and to support the principle the Deputy has sought support for. The other principle of bringing one's brain inside the gates of Leinster House, that is, that one is not just in a political straitjacket but one has a contribution to make beyond that, should also be supported. I thank the Deputy very much for that.
I want to support the proposal of the Chairman. Instead of us writing to several Departments we should write to the Minister for Finance and ask for his Department's assessment and that it consult with the other relevant Departments, namely, the Department of Children and Youth Affairs, the Department of Employment Affairs and Social Protection and the Department of Business, Enterprise and Innovation.
Instead of us writing to several Departments, we should write to the Minister for Finance and ask not only for his Department's assessment but that it would consult with the other relevant Departments, namely the Department of Children and Youth Affairs, the Department of Business, Enterprise and Innovation, the Department of Employment Affairs and Social Protection, and for the Minister, Deputy Donohoe, to revert to the committee with the considered response and assessment of the proposals made by Deputy MacSharry.
We could highlight that. I propose we send the transcripts as well so that they clearly understand where the Deputy is coming from. Is that agreed? Agreed. I thank the members for their attendance.