Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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8. To ask the Minister for Finance the reason his proposed income tax and universal social charge budget measures disproportionately favour those on higher incomes; and if he will make a statement on the matter. [45994/14]

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Minister’s budget and particularly its changes in income tax and universal social charge, USC, disproportionately favoured those on a higher income. People on €70,000 or more gained between four and six times more than people on the lowest incomes. I have probably made this point since the budget was announced. How can the Minister possibly justify and stand over this unfair budget, given the staggering levels of child poverty, homelessness and the expressions of anger shown on the streets against water charges by those who cannot pay them?

Michael Noonan (Limerick City, Fine Gael)
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I thank the Deputy for allowing me the opportunity to once again, answer this question which he also put to me at my previous appearance before the House to answer parliamentary questions. It is simply not true that the income tax and USC changes in the budget disproportionately favour those on higher incomes. However, I do not mind once again explaining our position as it is important that people realise what it is we are trying to achieve here.

A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high and that I would seek to reduce it as soon as it was prudent to do so. The measures announced in the budget are the first stage of a reform plan, to be undertaken over a number of years, to address this issue, particularly for middle-income earners who have borne the greater share of the cost of the economic downturn.

In budget 2015 I announced a reduction in the top rate of income tax from 41% to 40%. I also extended the standard rate band on which income tax is chargeable at the lower 20% rate by €1,000. In addition, I have reduced the two lower rates of USC from 2% and 4% to 1.5% and 3.5%, respectively. Furthermore, I have also increased the threshold before which the 7% rate of USC becomes payable to €17,576, so that those on the minimum wage will now only be liable to a maximum 3.5% rate of USC.

The budget also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to the over 70s, with incomes that do not exceed €60,000, again down from 4%.

Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the budget also contains USC measures which have the effect of limiting the maximum benefit from this package of tax measures to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent, as those with more modest incomes.

Additional information not given on the floor of the House

While the benefits from the changes introduced in budget 2015 are broadly proportionate to the level of income earned for those on low and middle incomes, the reality is that because of the highly progressive nature of the Irish tax system those on lower incomes pay very low levels of tax, particularly when compared to their counterparts in Europe. 

Currently, a single individual employed on the standard minimum wage of €17,542 per annum pays income tax of €4.01 and USC of €10.51 per week. Furthermore, someone on the standard minimum wage is also exempt from paying pay related social insurance, PRSI. As a result of the changes introduced in budget 2015 the weekly USC charge of €10.51 per week will fall to €7.19 per week. This means the individual's tax bill will be reduced by just over 20%.

In contrast a single individual earning €70,000 per annum currently pays €25,531 per annum or €490.98 per week in income tax, USC and PRSI. After budget 2015, this individual's tax bill will be reduced by about 3%. Contrasting these two examples, I cannot agree that the income tax budget measures disproportionately favour those on higher incomes. In fact, the highest proportionate benefit as a percentage of net income from the budget tax changes occurs at an income level of just over €12,000. This is a result of my decision to extend the USC exemption threshold from €10,036 to €12,012, which also has the effect of removing 80,000 low earning individuals from the charge entirely.

The changes announced in the budget will ensure that all those currently paying income tax and-or USC will see a reduction in their tax bill in 2015. I propose to continue this reform in future budgets, subject to the required economic growth and the consequent fiscal space available to the Government.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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According to Social Justice Ireland, an unemployed couple got €1.51 a week or €78.52 a year back in the budget while a couple with two earners on €125,000 will receive an extra €23.57 a week or €1,255 a year. A couple on €125,000 each, very wealthy and comfortable, got 12 times more in the budget than somebody on the lowest income. How can the Minister say that is fair? One can argue on some sort of technical grounds that we have a progressive tax system. Even the Minister’s budget examples showed that somebody on very low earnings was getting back a quarter of what somebody on €70,000 or more was getting. I do not know how the Minister can say that is a fair distribution of whatever extra resources he had for tax breaks or concessions in the budget.

Michael Noonan (Limerick City, Fine Gael)
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I do not know the source of the Deputy’s statistics in respect of an unemployed couple.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is Social Justice Ireland.

Michael Noonan (Limerick City, Fine Gael)
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An unemployed couple does not pay tax or USC so I cannot understand how he is attributing a saving on income tax and USC for an unemployed couple and using it-----

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am saying the budget disproportionately favoured-----

Michael Noonan (Limerick City, Fine Gael)
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-----as a comparison. Unemployed people do not pay tax. They do not pay USC. I do not understand the point the Deputy is making.

A single individual employed on the standard minimum wage of €17,542 per annum pays income tax of €4.01 and USC of €10.51 per week. Furthermore, someone on the standard minimum wage is also exempt from paying pay related social insurance, PRSI. As a result of the changes introduced in budget 2015 the weekly USC charge of €10.51 per week will fall to €7.19 per week. This means the individual's tax bill will be reduced by just over 20%.

In contrast a single individual earning €70,000 per annum currently pays €25,531 per annum or €490.98 per week and that individual's advantage is 3% whereas the advantage to the lower paid is 20%.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Minister should not be disingenuous. The question is very clear. Why did the Minister’s proposals for income tax and USC, as they stood when the question was tabled, disproportionately favour those on higher incomes? With what moneys the Minister had available to give back to people, why did he disproportionately favour those on higher incomes over those on the lowest incomes? It is a very straightforward question and the figures come from Social Justice Ireland to suggest that the Government decided to give 12 times more per week to a couple, both earning €125,000 a year, than it gave to a couple struggling on the poverty line. The Minister’s examples in the budget document showed that the people on the lowest earnings who are paying tax got back one quarter of what somebody on €70,000 got. I do not see how the Minister can say that is fair when the people who for the most part are out on the street or expressing their outrage about their inability to pay water charges are saying they cannot pay these bills. That is the issue.

Michael Noonan (Limerick City, Fine Gael)
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The relief is delivered through reductions in USC and reductions in income tax. A person on an income of up to €16,500 pays no income tax, so it is not possible to give him or her relief by reducing income tax.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The money can be allocated to social welfare.

Michael Noonan (Limerick City, Fine Gael)
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The Deputy is challenging me on tax. I do not handle the social welfare budget. As people earn more, they pay more in tax. When one starts to unwind it and give relief, those that earn more will be advantaged when it comes to reducing the tax imposition, because they pay more tax. To avoid what the Deputy is challenging me with, I put a cap at €70,000. The maximum is €14 per week at €70,000, but the person on €120,000, €200,000 or €300,000 only gains €14 per week as well. For the first time we are targeting the low and middle incomes. The benefits to the low paid were delivered principally through universal social charge reductions and the benefits to the middle income earners were a combination of USC and, principally, income tax.