Trevor Sargent (Dublin North, Green Party)
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Question 63: To ask the Minister for Finance if he has considered the possibility of introducing refundable tax credits; and if he will make a statement on the matter. [29985/04]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The issue of making unused tax credits refundable was considered by a working group established under the Programme for Prosperity and Fairness to examine the role refundable tax credits can play in the tax and welfare systems. The group was made up of representatives of the social partners and was chaired by my Department.

The current established approach to taxation in Ireland and other OECD countries is that while the tax system has a role to play in the broader issue of equitable income distribution, it is not the primary mechanism for the distribution of income to low-income households. Instead, the social welfare system is the main instrument for this.

It is also the established and generally accepted view that the fundamental role of taxation is to raise revenue to fund the provision of services by the State. The introduction of a refundable tax credit system would be a major departure from this position. It would have significant implications for the social welfare system as well as wide-ranging economic, cost and administrative implications.

Dan Boyle (Cork South Central, Green Party)
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The Minister has not expressed an opinion, he has outlined the views of the working group which met on the last partnership agreement. In the debate on tax equity, the question of refundable tax credits deserves consideration, given that people on the minimum wage are paying tax at the moment on 90% of their income. That means that a large number of PAYE workers benefit only partially from the tax credits they have been allocated or are unable to take advantage of them.

As to the excuse regarding the effect on the social welfare system of refunding tax credits, it might be argued that administratively it would be a better mechanism for redistributing income. Other mechanisms under social welfare to bring up the pay of low paid workers are very complicated and are not being accessed. The family income supplement is accessed by only one third of the people who are entitled to claim that supplement. By using the tax system creatively in this way, the Minister might, at lower cost and with better efficiency, go a long way towards solving the problem of low paid workers not getting full advantage from the tax system.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am advised by the Revenue Commissioners that the most recent estimated cost of making all personal tax credits refundable when they are unused, including personal employee credits, the home care tax credit, the one-parent family credit and the age credit, as well as the minor personal credits, such as the incapacitated child credit and the blind person's credit, would be approximately €1.3 billion annually. The main category of refund would relate to the basic personal credit where the annual cost of refunding the unused portion of the credit to income earners with insufficient earnings to fully absorb it would amount to approximately €700 million. The next two categories of refund in order of scale are the employee credit, which would cost approximately €590 million, and the home care credit which would cost approximately €35 million.

The estimate of €1.3 billion relates only to the cost of extending refundable tax credits to all those on Revenue's tax files. If a refundable tax credit system were to be introduced, one would have to consider those who are not on the tax files, for example, those who are of employable age but not working, including those on social welfare. That would increase the cost significantly.

Richard Bruton (Dublin North Central, Fine Gael)
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Would the Minister consider going part of the distance along this route? I have in mind particularly the family income supplement. Family income supplement has a very low take-up, not because there are not many people in the income categories that are eligible but because they must apply for it. Would the Minister consider making administrative arrangements to pay family income supplement through the tax code? He rightly states social welfare is the way in which many of these needs should be addressed. Is the Minister aware that if a person is unemployed and in receipt of rent supplement, 95% of the rent is paid but if that person gets a job at the minimum wage or higher, the supplement towards the rent, either from tax or supplementary welfare, drops to zero? This unwittingly creates an unemployment trap in our system. Between the Minister for Finance and the Minister for Social and Family Affairs, some solution must be found. If Deputy Boyle's solution is not the correct one, perhaps the Minister will find a different one.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We are getting into a potential budgetary area and I am not prepared to comment on what, if any, amendment I will make to the tax credits system. However, with regard to the broader point on the facts, costs and problems that come with this, there are negative effects with such a system of refundable tax credits without the characteristics of a partial basic income system.

Richard Bruton (Dublin North Central, Fine Gael)
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That is not what I asked.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am coming to the point. I am sorry if I do not answer as precisely as the Deputy wishes. I could say to the Deputy that he could have asked his question differently or more quickly but he would not find that appropriate or helpful. I will answer the Deputy's question.

The issue of the impact of secondary benefits is a continuing problem.

Paul McGrath (Westmeath, Fine Gael)
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Miriam Lord was right.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy does not have to interrupt me every time I open my mouth. Question Time is about providing information, not interrupting each other.

Richard Bruton (Dublin North Central, Fine Gael)
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The problem is that we are time limited.

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is no point being juvenile about it.

Richard Bruton (Dublin North Central, Fine Gael)
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As we are time limited, we do not have the luxury of waiting for answers.

Dan Boyle (Cork South Central, Green Party)
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The Minister is wasting time.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I made a point in regard to this question. It was suggested that I have a discussion with the Minister for Social and Family Affairs in regard to the impact secondary benefits have in preventing people coming into the jobs market. I will take up that offer. However, an economic paper prepared by the European Commission in 2001 refers to the major negative aspects regarding this system as including high budgetary costs, which imply higher taxation and, therefore, increased rather than reduced distortions of the labour market. In addition, it suggested that another problem with universal public assistance schemes which are not usually combined with work, for example, a simple negative income tax system, is the disincentive effect they have on persons or families not already on welfare but who become windfall beneficiaries of universal schemes.

Richard Bruton (Dublin North Central, Fine Gael)
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What about the family income supplement?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The point I am making indicates that no matter how we try to deal with the impact of supplementary benefits or the loss of eligibility to them in the event of people entering the workplace, a refundable tax credit system is not a component that would bring about a solution, according to those more expert than I in this area.