Brian Lenihan Jnr (Dublin West, Fianna Fail)

I assume what Deputy Burton has in mind is an allowance of €18,304 for individuals with income up to €25,000 or some similar mechanism. This would have the effect of reducing the income levy payable by such individuals by €183 per annum. This would cost the Exchequer approximately €60 million in the full year and would add a considerable level of complexity to the system. If the Deputy believes that this amendment would solve the issue of the step effect, I would have to say it would not, but merely move the step up and cost €60 million in the process.

If I understand Deputy Bruton's amendment correctly, it would introduce a fourth rate of 0.5% to the income levy. It would mean that a levy of 0.5% would apply to incomes between €18,304 and €28,304 in the case of a person under 65 and for income between €20,000 and €30,000 in the case of single persons over 65 and between €40,000 and €60,000 for a married couple where one or both is aged 65 or over. This would also cost approximately €60 million in a full year and the maximum benefit to individual workers would be less than €3 per week. There would be considerable difficulties in payroll implementation.

Deputy Morgan's amendment proposes to almost double the exemption threshold. The cost of this measure would be €185 million in 2009 and €265 million in a full year. Aside from the significant cost of the measure, it would also mean setting a lower exemption threshold that is 7% above the projected average industrial wage for 2009. The cost of these amendments would have to be recouped from elsewhere.

With regard to Deputy Burton's point about income splitting arrangements, the transfer of assets to a spouse to avoid paying the levy at 3% would be of minimum benefit in that the spouse would also be subject to the levy in his or her own right. Transferring an asset to effect a saving of 1% or 2% of income levy would, in many cases, cost more in conveyancing and legal costs. Likewise, paying a spouse through the accounts of a business, where the spouse is not actually employed, would not be an expense which is wholly and necessarily incurred in the performance of the business. Therefore, it would not be allowed as a deduction.

Deputy Bruton rightly referred to the complexity of the income tax and other variable systems we have in place. In substance, the operation of PRSI, the health levy, income tax and this levy amount to an income tax system. I agree with Deputy Bruton on that and look forward to the proposals of the Commission on Taxation in that respect.

Deputy O'Donnell contrasted the treatment of marginal relief, income tax and PRSI with this particular proposal. Income tax is at a rate of 20% and PRSI is also substantially in excess of this sum. I do not believe the Deputy is comparing like with like in discussing marginal rates in the context of a 1% levy.

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