Tuesday, 7 December 2010
FINANCIAL RESOLUTION No. 14: INCOME LEVY
In 2010 it is estimated that almost 45% of income tax earners will be exempt from income tax and only 14% will pay income tax at the higher rate. For a single individual, the entry point to income tax is €18,300. A married, one income family does not start paying income tax until income levels are in excess of €31,950. It is evident that this situation has become unsustainable. We arrived at this situation by the very generous increases in credits and bands over several years. The combined value of the personal tax credit and the PAYE tax credit has increased by 92% since 2001, from €1,905 to €3,600 in 2010. The single standard rate band has increased from €17,780 in 1999 to €36,400 in 2010. This is an increase of 105%.
It is clear that we cannot afford such generous tax reliefs on income. In this budget, therefore, we have reduced the personal and PAYE tax credits by approximately 10% to €1,650 each from €1,830. We have reduced the single standard rate band to €32,800 from a value of €36,400. The married one income band has been reduced to €41,800 from €45,400 and the married two earner band has been reduced to €65,600 from €72,800. These measures will reduce the entry point to income tax for a single individual to €16,500 and for a married one income family to €28,800. These measures will return tax credits and bands to where they were in 2006. As a result of these measures, the numbers exempt from income tax in 2011 will be reduced to 38% from 45%. The numbers exempt will be reduced to 843,400 from the 2010 figure of 982,900 - a reduction of almost 140,000.
Most important of all in these difficult times, it is estimated these measures will raise €830 million in 2011 and €1.1 billion in a full year. We will also reduce the age exemption limits from €20,000 for a single person and €40,000 for a married couple to €18,000 and €36,000, respectively. It is not unreasonable in these difficult times to reduce the entry point to tax for a married couple aged under 65 years with no children to €24,750 but maintain the entry point to tax at €40,000 for a couple over 65 years.
A new universal social charge is being introduced to replace the income levy and the health levy. The universal charge will be applied at a rate of 2% up to €10,036, 4% above that amount but below €16,016 and 7% above €16,016. A lower exemption threshold of €4004 will apply. Income earners over 70 years of age will not be liable for the higher rate of 7%. As with the levy, payments made by the Department of Social Protection will be exempt from the universal social charge. The charge is more equitable and has a wider base and lower rate when compared with the combined income levy and health levy. It is designed to apply across income levels in a smoother progression while addressing the irregularities caused by the step effects in the current system of levies and PRSI. The current combination of income levy, health levy and PRSI create a number of anomalies due to the entry point steps to each of these charges. The health levy has a step of 4% to €26,000, which results in an anomaly whereby an individual earning €25,500 per annum can receive an increase in income of €1,000 but only €320 in net pay. The introduction of the universal charge will resolve this issue. An individual on €25,500 who receives an increase of €1,000 will now be €690 better off. The charge is the first step in removing the irregularities due to the combination of levies and PRSI in the current system. The charge is revenue neutral in 2011 and will yield €420 million in a full year.
Financial Resolution No. 10 reduces the level of the standard bands. The single standard band is reduced from €36,400 to €32,800. Financial Resolution No. 11 reduces the level of income tax credits by approximately 10%. Personal PAYE credits will be reduced from €1,830 to €1,650. Financial Resolution No. 12 reduces the threshold for the exemption limit for persons aged 65 or older to €18,000 for a single or widowed person and €36,000 for a married couple where either spouse is aged over 65 years. Financial Resolution No. 13 gives statutory effect of the budgetary announcement that a new charge called the universal social charge will be introduced on 1 January 2011.
The Government got it completely wrong in this case. We oppose this group of Financial Resolutions because they will hit low and middle income earners. The imposition of income tax as proposed by the Government will destroy the traditionally low level of tax levied on the wedge between the employer's bill and the take home pay of the employee. The Government is going to force down the standard of living for those on low and middle incomes.
Fine Gael proposed not to increase income taxes in 2011 and we demonstrated this could be done by making savings of â¬250 million through 6,000 further redundancies in back office and administration throughout the public sector. There are further alternatives for making savings, such as greater cost reductions and further changes to the public service.
Under this imposition, a single person on the minimum wage will be worse off by â¬879 annually or â¬17 per week. If one takes account of the changes made in respect of income tax and the universal charge, such an individual will lose twice as much as if he or she was on welfare. This is a savage imposition on the lowest earners. It is not the kind of progression we need and, from that point of view, must be rejected.
According to the figures outlined in the budget, the income tax that is now to be imposed means a couple with three children and a single gross income of â¬50,000 will be worse off by â¬1,800. Such a family would be better off by â¬1,600 under the alternative plan proposed by Fine Gael, which makes it clear that it is not necessary to increase income tax in 2011.
The Minister for Health and Children, Deputy Harney, was previously an advocate of streamlining income tax and reducing the tax burden. She will be aware, therefore, that these proposals are short-sighted, lack ambition and will force down the living standards of people on low and middle incomes. They contain a series of landmines which were never acknowledged by the Minister for Finance. They are appallingly short-sighted and retrograde and, for these reasons, I oppose them resolutely.
I wish to ask the Minister some questions about the universal social charge, which represents a significant change to our tax code. In effect, people will be charged for what they commonly understand as social provisions. I acknowledge that the PRSI rate of 4% is not being touched for most people but the universal charge is described in paragraph 2 of Financial Resolution No. 13 as a tax. It replaces the old health contribution and the levies that have applied since the advent of the financial emergency. As a tax, it will go into the general pool of taxation, whereas its name gives people to understand that it will be dedicated to social provision, including the areas of health and children.
The current health contribution is charged at a rate of 4% on income up to â¬75,000 but employees earning up to â¬500 per week, or â¬26,000 per year, are exempt. Under the new system, everyone with an income over â¬4,000 will be subject to the universal social charge at a higher rate. The rate of the levies in 2010 for an individual earning less than â¬75,000 was 2%. The universal social charge comes in at a very low level and individuals who earn more than â¬4,000 must pay the levy on their entire income.
The levy is reduced slightly for those who are aged 70 years and older. Every Deputy will be aware that medical card holders, including those who are aged 70 years or older, were exempt from the health contribution. I would be delighted to hear that the small print provides for this.
There are eight pages of text dealing with this levy, but I cannot find where it says that people in receipt of a medical card or who are over 70 are exempt from this new universal social charge. It is called a charge because it is general taxation and breaches the contributory principle that is at the heart of the social welfare contributory system, which is that one contributes when one works and receives entitlements in one's old age. I am surprised that Fianna FÃ¡il opted for this measure. Perhaps it is a Progressive Democrat or a Green Party idea. I am surprised at the severity with which this measure is set out.
Can the Minister tell me I am wrong about medical card holders? As we all know, getting a medical card at present is pretty tough.
In the Budget Statement, the Minister for Finance gave us information I had heard a month ago when I was in the Department of Finance with my colleagues. The Minister said those earning more than â¬75,000 represent approximately 8% of all income tax payers and those 8% of taxpayers pay 60% of all income tax. Following the changes to income tax rates, how is that figure likely to change?
Second, Deputy Burton has made an important point. It is my understanding that the social insurance fund works on the basis that an individual makes a pay related social insurance, PRSI, contribution and that contribution goes into the social insurance fund. This is not a finance measure; it is a social welfare measure. In good times we take money from the social insurance fund and in bad times we supplement it. What will now happen to the social insurance fund? Will it remain in place? With the abolition of the two levies, will the new charge go into that pot of money?
The Minister for Finance said those earning the new reduced minimum wage would not be brought into the tax net. I seek clarification in this regard. Financial Resolution No. 12 states:
That, with effect from 1 January 2011, there shall be charged, levied and paid, in accordance with the provisions of this Resolution, a tax to be known as "universal social charge".
This is an acknowledgment that the universal social charge is a tax.
What is the situation in respect of the minimum wage? The charge will not be levied on incomes up to â¬4,000, at 2% on incomes up to â¬10,036 and at 4% on the next â¬5,980. There needs to be further clarification of the position of people who are earning the minimum wage. The Labour Party interpretation is that this charge is a tax to be levied on those in receipt of the new reduced minimum wage. If that is the case, it is grossly unfair.
The Minister described these measures as more equitable. This is completely wrong because low income earners will be paying a substantially higher proportion of their incomes then high income earners. That is grossly unfair. The Government could have introduced a wealth tax but it chose not to do so.
The universal social charge is not a social charge. It is a tax, and that is the end of it. A person earning the minimum wage has already been tapped for â¬40 per week. The Government now proposes to go back to the economic carcass of that person for a further â¬360 per annum. Can the Minister for Health and Children confirm that people on the new minimum wage will have to pay a charge of â¬360 per annum under this so called social charge? This is far from fair or equitable.
I welcome the abolition of the income and health levies, which were unfair. However, they did, at least, contain some element of relativity in that they captured higher income individuals.
What has been done with regard to tax credits is appalling. They have been cut by 10%, as the Minister for Health and Children has outlined. This is more than the percentage cut to ministerial pensions. A tax credit applied to carers, who save the taxpayer an average of â¬40,000 per year. We are not giving them basic recognition in the taxation system. Given the anomalies in the respite care grant, the tax credit is the only recognition some carers receive. That recognition is now being reduced by the proposal before us.
People with a disability and those who are visually impaired incur additional costs in going to work, and have a low rate of employment in any event. The visually impaired have additional costs in making adaptations to allow them to live independently or to get to and from work. It does not make sense to penalise the small number of people who avail of this tax credit, which will be the effect of the proposed measures.
The lowest cut of all is the reduction in the tax credit for a widowed person in the year of assessment. In the year when a person loses his or her spouse, we are cutting their tax relief by 10%, which is greater than the cut to the pensions of Ministers who will be leaving Government in a few months time.
I ask the Minister for Health and Children to justify these measures and explain why she, if she decides to retire, should be entitled to less of a cut than a widowed person in the year they become widowed. This is unacceptable, as is the cut in tax relief to someone looking after an incapacitated child. Some 64% of children with a disability must remain at home, saving the taxpayers â¬70,000 per year.
The income levy was imposed as an emergency measure because of the financial circumstances the country was in. It was accepted on the basis that it would be dispensed with at some point. We are being asked to facilitate a con trick. We are being asked to pretend we are doing something that will give services to the public. We are about to concrete the income and health levies forever.
I can see an argument for breaking up the PRSI fund among the various health, pension and social welfare entitlements. That would have made sense to me. However, this universal social charge is an absolute con trick. I sincerely hope the public will see through it. How can the Minister for Health and Children stand over this income levy being consolidated into our tax code on an ongoing basis?
Does the universal social charge relate exclusively to the income and health levies being combined, or will it encompass all PRSI payments? The Minister for Health and Children says the charge is revenue neutral. Will the tax be progressive or will the lower paid be charged a greater percentage of their incomes than higher earners?
The Minister says all taxpayers will suffer an equal hit. However, people earning approximately â¬16,000 will be coming into the tax net for the first time since 2006. They will also be liable for the universal social charge. How will revenue from the charge be used? The health levy was originally introduced for health use but I am not certain it was ever used for that purpose.
I agree that this is a complete con. It is a new tax. We have been given all kinds of assurances about people on minimum wages not being included in the tax net. They are not in the income tax net but they are caught in the net with this charge. This charge started as a universal social contribution with an element of contributing and getting something back but this recently changed to a charge. It is a new tax, a new way of squeezing money out of people. It is shifting the burden of taxation from the better-off to low income people. This is the whole purpose of this charge and the Government should be honest about this purpose.
A number of points of clarification are required. Will the current exemptions applying to the health and the income levies apply to the universal charge? How will it interact with family income supplement? This charge kicks in for low income people at the level of â¬4,000. It is designed to bring people with incomes in the region of â¬4,000 into the tax net and it is fundamentally unfair. Pensioners are now going to be caught with the combination of this universal charge and the lowering of the age exemption, so that a pensioner couple, with an income of just under â¬40,000 will be caught for an additional tax of â¬2,000 a year as a result of this measure. This is about hammering people on low and modest incomes and nothing else.
I refer to people on very low incomes being taxed because that is what this charge does. To continue the point made by Deputy Barrett, what are the benefits of this tax? We all know that PRSI, pay-related social insurance, provided certain benefits which were available when needed but where are the benefits of this charge? Who decided on the different categories? It was always accepted that certain groups with particular needs were exempted. However, it now seems there are two categories of people with regard to social welfare, the old-age pensioners - who, in this weather, would begrudge them the couple of bob they receive - and all the others. I could never understand how widows under 66 years and left with young families through no fault of their own and on a meagre income, have not been given the household package.
A friend of mine asked me to raise this question. I refer to those employed before 1995 and post-1995 in the public sector and to whom different rates of PRSI apply. The people employed after 1995 were given an increase in their salary because it was recognised they were paying a higher contribution. Will all of those people be caught for the one charge if they earn â¬75,000?
I wish to correct a drafting error in Financial Resolution No. 13. At sub-paragraph (ii), the Department of Community, Rural and Gaeltacht Affairs, should read the Department of Community, Equality and Gaeltacht Affairs. At sub-paragraph (iv), the Department of Education and Science should read the Department of Education and Skills.
I refer to the tax wedge mentioned by Deputy Kenny. Even after the changes made today, Ireland will have the lowest tax wedge in the EU for a single person, at 31.4%-----
We are taking income tax, or take-home pay, back to where it was in 2006. With regard to the questions raised by Deputy Burton, it applies to all income other than income of less than â¬4,000. It does not include welfare income.
Any income less than â¬4,004 is excluded but all income over â¬4,004 is included. This is applied at 2% up to â¬10,000, at 4% between â¬10,000 and â¬16,000 and at 7% above that.
The health levy only applied to salaries over â¬26,000 and the income levy applied to salaries over â¬15,000. The minimum wage will still be excluded from tax but will be included in this charge.
The health levy goes to fund the public health system, a total of approximately â¬2.1 billion in 2010 with a shortfall of â¬400 million because of the level of unemployment. We recently moved a Supplementary Estimate to provide for this. Instead of this being an appropriation-in-aid from the Revenue and the Department of Social Protection, it will go into the central Exchequer and will be re-diverted back. This means an element will go to fund the health system but PRSI is not being included. The Minister said last year that he intended to include PRSI but it became very complicated to do this in one year so it is not being done at the moment.
In reply to Deputy Naughten, it is not-----
The medical card should be for medical needs and it has become a passport for school transport and many other things. We need to decouple it. One of the reforms being examined is to have a higher element of medical need attached to the medical card rather than the pure income which is not always fair.
Deputy Naughten referred to Members' and Ministers' pensions being hit by 4% but the figure is 12%. Pensions at our level will be hit by a 12% reduction. When the Minister referred to 4% he was referring to an average of 4% but we will be subject to a reduction of 12% in pensions. All credits are being reduced by 10%.
Payments to haemophiliacs, hepatitis C victims and thalidomide victims will be exempt.
There is much confusion with regard to these measures. I refer to the example of income tax proposed on a single person with no children and taxed under schedule D with a gross income of â¬10,000 per year. The proposed income tax would amount to â¬230, with PRSI of â¬400. A person would lose â¬480 per year. The percentage change of net income is 5.3%, whereas for a person on â¬175,000 gross annual income it is as little as 0.9%. I find it very difficult to understand how the Minister could stand up earlier and inform the House that this is an equitable or fair budget, because it clearly targets low paid workers and there is no incentive for them to work on that basis.
The Dail Divided:
For the motion: 82 (Bertie Ahern, Dermot Ahern, Michael Ahern, Noel Ahern, Barry Andrews, Chris Andrews, Seán Ardagh, Bobby Aylward, Joe Behan, Niall Blaney, Áine Brady, Cyprian Brady, Johnny Brady, John Browne, Thomas Byrne, Dara Calleary, Pat Carey, Niall Collins, Margaret Conlon, Seán Connick, Mary Coughlan, Brian Cowen, John Cregan, Ciarán Cuffe, John Curran, Noel Dempsey, Jimmy Devins, Timmy Dooley, Frank Fahey, Michael Finneran, Michael Fitzpatrick, Seán Fleming, Beverley Flynn, Paul Gogarty, John Gormley, Mary Hanafin, Mary Harney, Seán Haughey, Jackie Healy-Rae, Máire Hoctor, Billy Kelleher, Peter Kelly, Brendan Kenneally, Michael Kennedy, Tony Killeen, Michael Kitt, Tom Kitt, Conor Lenihan, Michael Lowry, Tom McEllistrim, Mattie McGrath, Michael McGrath, John McGuinness, Martin Mansergh, Micheál Martin, John Moloney, Michael Moynihan, Michael Mulcahy, M J Nolan, Éamon Ó Cuív, Seán Ó Fearghaíl, Darragh O'Brien, Charlie O'Connor, Willie O'Dea, John O'Donoghue, Noel O'Flynn, Rory O'Hanlon, Batt O'Keeffe, Ned O'Keeffe, Mary O'Rourke, Christy O'Sullivan, Peter Power, Seán Power, Dick Roche, Eamon Ryan, Trevor Sargent, Eamon Scanlon, Brendan Smith, Noel Treacy, Mary Wallace, Mary White, Michael Woods)
Against the motion: 78 (Bernard Allen, James Bannon, Seán Barrett, Pat Breen, Tommy Broughan, Richard Bruton, Ulick Burke, Joan Burton, Catherine Byrne, Joe Carey, Deirdre Clune, Paul Connaughton, Noel Coonan, Joe Costello, Simon Coveney, Seymour Crawford, Michael Creed, Lucinda Creighton, Michael D'Arcy, John Deasy, Jimmy Deenihan, Pearse Doherty, Andrew Doyle, Bernard Durkan, Damien English, Olwyn Enright, Frank Feighan, Martin Ferris, Charles Flanagan, Terence Flanagan, Eamon Gilmore, Noel Grealish, Brian Hayes, Tom Hayes, Michael D Higgins, Phil Hogan, Brendan Howlin, Paul Kehoe, Enda Kenny, Ciarán Lynch, Kathleen Lynch, Pádraic McCormack, Shane McEntee, Dinny McGinley, Finian McGrath, Joe McHugh, Liz McManus, Olivia Mitchell, Arthur Morgan, Denis Naughten, Dan Neville, Caoimhghín Ó Caoláin, Aengus Ó Snodaigh, Kieran O'Donnell, Fergus O'Dowd, Jim O'Keeffe, John O'Mahony, Brian O'Shea, Jan O'Sullivan, Maureen O'Sullivan, Willie Penrose, John Perry, Ruairi Quinn, Pat Rabbitte, James Reilly, Michael Ring, Alan Shatter, Tom Sheahan, P J Sheehan, Seán Sherlock, Róisín Shortall, Emmet Stagg, David Stanton, Billy Timmins, Joanna Tuffy, Mary Upton, Leo Varadkar, Jack Wall)
Tellers: Tá, Deputies John Cregan and John Curran; Níl, Deputies Paul Kehoe and Emmet Stagg
Question declared carried