Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank the Senators for raising this issue. The Minister, the Government and I have been consistent from the beginning. This payment was taxable from the day it was introduced. It always has been. There is a mass misconception about the taxation of the payment, which has always been possible. I hope to put the record straight. People who are not watching this meeting might not get the reality of the situation regarding the taxation of the PUP, but at least the correct position will be on the record of the House, even if it is not known among the general public.

Section 3 provides for the taxation treatment of the pandemic unemployment payment. This is subtly different from providing for the taxation of the payment. It provides for its taxation treatment. It was taxable to start with. This section is about how that tax, which has existed since the beginning, is to be treated. This section does not introduce taxation but clarifies how the taxation to which the payment has been subject since its introduction is to be treated. This section does not introduce a tax. It clarifies the tax treatment of the payment, which was taxable from day one. Some people have understandably taken this clarification of the treatment of this taxation, which I will explain in a few minutes, to mean that section 3 retrospectively introduces taxation.In fact, we are clarifying the treatment of the taxation of the PUP, which was taxable from day one. I wanted to put that on the record. People might not understand what the section is about. It is not about taxation but about the treatment of a payment that is already taxable. It is a clarification of the treatment.

The PUP was placed on a formal statutory footing by the Social Welfare (Covid-19) (Amendment) Act 2020, which was passed into law on 5 August. I have been consistent as regards the PUP’s liability to tax from the outset of the payment. It is fair and equitable that recipients of the PUP are subject to tax on this income - it is an income - just as those who have continued in employment are subject to tax on theirs. The PUP is an income support and shares the characteristics of the jobseeker's benefit and the self-employed jobseeker's benefit, both of which are taxable. From the very beginning, certain social welfare payments have always been exempt from income tax, while others have always been subject to tax. Everyone knows that jobseeker's allowance is not taxable and that jobseeker's benefit, because it is connected to having been in work and is claimed when someone is out of work and might be back in work in the same year, has always been taxable, as are other benefit payments. The State pension, similarly, is subject to taxation if the recipient has other income that brings him or her into the tax net. Several social welfare payments are taxable and that has always been the case.

The PUP is not an allowance payment and we have to consider what it is about. It is intended for people who were in employment, are not in employment for a period and will be back in employment at a future date. It is very similar to a jobseeker's payment. It is intended for somebody who had been in employment, was out for a period and goes back in. It is similar to the jobseeker's benefit payment and nobody argues about the taxation of that. It would be inequitable if the PUP was not taxable while the jobseeker's benefit was. Indeed, as a general rule, all social welfare payments are subject to taxation, unless specifically exempted.

The section will provide that the PUP will be treated as an emolument to which Chapter 4 of Part 42 of the Taxes Consolidation Act applies and,accordingly, charged to tax under Schedule E. This means that while taxable, the payment will attract the personal income tax credit and the PAYE credit. The taxation position will follow the general taxation rule for social welfare payments and, therefore, the payments will be exempt from PRSI and the universal social charge. I will presently explain that in plain English because it is the crux of the issue. Furthermore, to alleviate any immediate financial burden that may arise, Revenue announced last September that it will collect the liability, interest free, by reducing the individual’s tax credits over four years to minimise any hardship. This reduction of tax credits will start in January 2022.

As I said on Second Stage, there is some debate about when the tax will fall due and whether people will get a shock at Christmas. By definition, anybody involved in that debate knew that the payment would be taxable. Why else would they have asked whether people will get a shock in their tax bill at Christmas? They understood it was taxable. The only issue related to when people would have to pay the tax. The Members involved in that debate cannot now, a couple of months later, say they never knew it was taxable, having discussed the date of when people will find out how much is due on their tax bill. There is an inconsistency in the argument that Members are making on this Stage versus the arguments they may have made in the summer, which concerned when people would find out how much they owed in tax. Revenue has decided that it will not collect the tax even next year because we do not know what will be the status of the PUP next year. We might still be dealing with Covid. Revenue has indicated, therefore, that it will start collecting the tax only from 2022, which means it will adjust a person's tax credits over a four-year period starting in 2020. Over that period, it will bring about a reduction in a person's take-home pay of approximately €1.50 per week. If persons know they have this liability and if they want to keep their tax affairs up to date, they can notify Revenue that they are happy to pay it all as soon as practicable in order that they will not have to spread it over four years. Nevertheless, the default position of Revenue is that it will collect the tax over four years unless a person comes forward to say that he or she wants to pay it upfront and be done with it. People will have that option. That debate has been ongoing for a while because everyone knew what we were talking about. It was not just a matter of whether the payment was taxable but rather when the tax would be paid. They cannot now, having had that debate, in which many people were involved, pretend it would never be taxable.

Some have argued that the PUP is an urgent needs payment and, therefore, is exempt from tax by virtue of section 13 of the Finance Act 2018, which exempted from tax a range of social welfare payments. While it is the case that the Social Welfare (Covid-19) (Amendment) Act referred to the PUP as a payment made under section 202 of the Social Welfare Consolidation Act 2005, which deals with what are commonly referred to as urgent needs payments, this was used merely as a vehicle to get payments out quickly to employees and self-employed persons who had lost their jobs due to Covid-19. When Covid first emerged, the Government wanted to respond promptly. If we had put the payment down as the equivalent of an unemployment allowance payment, it would have taken weeks to process and people would have been left stranded. The Government took the view that we should help people on the spot, to put the cash in their hands within days of them requiring the payment, and the quickest mechanism was to get it through like an urgent needs payment, without the need for a detailed check and a community welfare officer having to check the person's circumstances. The idea was to get it out quickly.

Section 202 of the 2005 Act facilitates urgent needs payments, which are processed quickly, and that was done. It did not mean it was a supplementary welfare allowance payment, which it is not. Many people would not accept the suggestion that anybody who was in work and is now out of work because of Covid would go on a supplementary welfare allowance payment. People will argue that they were in work and lost work because of Covid, and similarly to the case of the jobseeker's benefit, if somebody is out of work due to no fault of his or her own, he or she should be able to claim the payment based on having been in work. The payment is related to the person's work and he or she has an entitlement to it because he or she was paying PRSI contributions.

Everyone knows that if somebody is getting the jobseeker's benefit in such circumstances, he or she pays tax on it in due course. It is applied to the person's taxable income at the end of the year, depending on the income that has been earned from employment. We wanted it to be related to a person's work and PRSI contribution record, analogous to the jobseeker's benefit, but we also wanted to get it out promptly, which we did. The only way of meeting both objectives was to treat it like an urgent needs payment, but not to classify it as a supplementary welfare allowance. I do not suggest that everyone who got the PUP was on a supplementary welfare allowance because many people might not like to be forced into asking for a supplementary welfare allowance. That is normally a difficult process in any event. We used that section purely to get the payment out quickly. The suggestion that we got the money out quickly as an excuse to say it should not be taxable like the jobseeker's benefit is not accurate. The Government did the right thing We got it out quickly and we used a mechanism to do that. It is not to be confused with a supplementary welfare allowance.

Nevertheless, the PUP, by its nature, is not an urgent needs payment. To return to my earlier point, this section concerns the treatment of taxation. It has been implicit from day one that the PUP would be taxable. This is where it gets complicated. There are various headings relating to taxation in the tax code. Cases I and II of Schedule D tax deals with trading and professional income, while cases III and IV deal with investment, foreign income and miscellaneous income. The PUP, therefore, comes in under case IV of Schedule D. Case V concerns rental income, while Schedule E covers employment income, the heading we are all used to.A person in employment is taxed under Revenue rules and rules set out under Schedule E of the Finance Act. Under Schedule E, people are entitled to tax credits and a PAYE allowance. That PAYE allowance is specifically for people whose income from employment comes in under Schedule E. As the PUP is not an income from employment, it does not come in under Schedule E in the tax code. It is a miscellaneous income, which comes in under Case IV of Schedule D. If I were to do what people have asked me to do and withdraw this section, it would make the situation dire. I do not believe any of the Senators who asked for the section to be withdrawn understood the consequences of what they were asking me to do.

Under Schedule E, income from employment, a person is entitled to a PAYE allowance and a tax credit allowance. There is no equivalent allowance in respect of PAYE allowance for income under Case IV, which is investment income, foreign income or miscellaneous income as in a social welfare payment. The purpose of section 3 is to allow for the PAYE and tax credit allowances to be offset against the PUP so that people will not be paying tax on it, save for the €1.40 per week people will pay over a four-year period if they were in receipt of the PUP for the full period. If we withdrew this section, a person in receipt of the PUP would not be able to offset against that payment the normal PAYE allowance or tax credits he or she would have if in employment and in receipt of an income from that employment. There are two different strands of employment for taxation purposes, one of which is an employment in respect of which those allowances are available. Section 3 provides for these allowances that are normally only available to people who receive income directly from an employer also to be offset against the pandemic unemployment payment. If we did not allow that, the PUP would be 100% taxable.

The legislation is complicated. This section provides for the normal allowances that a person would have to be offset against the pandemic unemployment payment because it is a different category of income under the existing Tax Acts. If we did not do this and we withdrew this section, the PUP would be 100% taxable from day one and recipients of it would have no benefit from a PAYE allowance or tax credits. I have gone a long way around the house to explain it. I hope I have explained it. I am not reading from a script. I am trying to explain this in a way such that people listening get the message of what I am saying. I am convinced 99% of the people who have been talking about this do not understand the intricacies of it. We are paid as Oireachtas Members to go through things line by line and we are doing so here today. We are doing a good job in allowing section 3 to remain in the Act so that the PUP will not be taxed to the extent it would be taxed if we did not allow the tax credits and PAYE allowances to be offset against it.

This is not about taxes. Rather, it is about allowing the normal reliefs that a person in employment would have against tax to be offset against the PUP. As I said earlier in my initial reply, this is about taxation treatment and not whether the payment is taxable. It is taxable but this is about the treatment of it. This provision seeks to ensure people in receipt of PUP do not fall into an unforeseen tax net. I hope when people understand what section 3 is about, they will see 100% merit in it.

I cannot accept the amendment because there would be uproar tomorrow morning if people learned they could not offset their PAYE allowance and tax credits against their pandemic unemployment payment. We are doing a good job here today. I accept it is tricky to understand.