Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy requested 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. By a refundable tax credit, I assume the Deputy means that where an income earner has insufficient income to use all of his or her tax credits, the unused portion of the credit is paid to the taxpayer by means of a cash transfer.

This matter was looked at in some detail in 2002 by the working group established under the programme for prosperity and fairness. This group was chaired by the Department of Finance and included representatives from the Irish Congress of Trade Unions, ICTU, IBEC, various farming organisations, the community and voluntary pillar, relevant Departments and the Office of the Revenue Commissioners. Notwithstanding the passage of time, many of the findings and conclusions identified by the working group remain very relevant.

That working group found there were significant disadvantages with such a system. These included the potential negative impacts on the incentive to work, labour supply, labour force participation and overall productivity and output. Refundable tax credits may not be consistent with the objective of encouraging as many people as possible to join or remain in the workforce.

For that reason, the concept of refundable tax credits in the income tax system is not one I support. The committee will be aware of the other means by which the Government aims to support those on lower incomes, for example, through changes in the national minimum wage. I anticipate, however, a point that could be made to me, namely, that I am referring to an assessment on this that was done 21 years ago. In the context of the work that will be done by the tax strategy group, TSG, for next year, I will ask my officials to give this matter another assessment to inform public debate in this area.