Joan Burton (Dublin West, Labour) | Oireachtas source

Amendment No. 1 seeks to insert in page 6, line 21, after “income” the words “in excess of €6,000”. Similarly, amendment No. 2 seeks in page 6, line 29, after “income” to insert “in excess of €6,000”. I do not propose to accept these amendments.

The purpose of the section is to abolish the exemption from PRSI applying to employees and occupational pensioners under 66 years whose only other source of income is unearned. This unearned income will become liable to PRSI at the rate of 4% but only if the individual has sufficient income to be regarded by the Revenue Commissioners as a chargeable person.

A PRSI charge will not apply to PAYE taxpayers who have small amounts of unearned income that are subject to tax through the PAYE system. This is generally regarded as amounts not exceeding €3,174. In addition, people who have reached the State pension age of 66 are not liable to PRSI and therefore will not be affected.

Applying the charge to a higher level of unearned income, as proposed by Senator Mooney, would have the effect of excluding those with substantial levels of savings from the PRSI charge. For example, if the threshold for the charge was set at €6,000, as has been proposed, this would exclude those with savings of approximately €240,000 from the PRSI charge, assuming a rate of interest on such savings in the region of 2.5%. Obviously, given the current low interest rates, one is talking about far higher levels of savings.

In addition, as this PRSI charge is being collected by the Revenue Commissioners along with tax and the universal social charge, any change to the threshold at which the charge applies would cause difficulties in the assessment and collection of the charge by Revenue. As the Senator will appreciate, this is essentially a Revenue measure which we are carrying in the context of the social welfare Bill because PRSI is also a social welfare matter in terms of the Social Insurance Fund.

The exclusion of people with such significant levels of savings from this PRSI charge would significantly reduce the projected additional income to the Social Insurance Fund, which the measure is expected to yield. This section provides for the second of two measures which were announced by the Minister for Finance in December 2012, to broaden the income tax base on which PRSI is charged.

Earlier this year, in the Social Welfare (Miscellaneous Provisions) Act, I abolished the PRSI exemption for modified rate PRSI contributors who also have income from a trade or profession. The Senator will recall that regarding some people with very high incomes from the public service, such as consultants, there was an anomaly in the PRSI taxation base whereby their other income fell outside the PRSI catchment.

The significant shortfall in the Social Insurance Fund, which is being met by the Exchequer, will be above €1 billion this year. Given the measures we have introduced, and with the numbers of people going back to work, I confidently expect that the hole in the Social Insurance Fund will probably fall to about €700 million next year. That is important in terms of sustaining pensions for older people. We must have a broader PRSI base. The only alternative is to increase the levels of PRSI on people who are already paying PRSI.

This is a base-broadening measure to include a wider set of income sources than have been included up to now. As I have mentioned on a previous occasion in the Seanad, one of the priorities is to take steps to put the Social Insurance Fund on a sustainable financial footing. Yesterday I told Senators that we are spending an extra €190 million in this year's budget on pensions, contributory and non-contributory. Of the €20 billion spend we discussed, more than €6.5 billion goes on pensions. The sustainability of the Social Insurance Fund is critical to being able to maintain our rates of retirement pension for older people. To ensure this measure does not give rise to additional costs to the Social Insurance Fund, this new PRSI charge will apply without giving rise to entitlements to social insurance benefits. The majority of the individuals affected by this measure qualify separately for social insurance entitlement based on PRSI paid on other sources of income, for example, PRSI paid on income from their employment.