Thursday, 27 November 2008
Tax and Social Welfare Codes
I thank the Cathaoirleach for allowing me to raise this issue. While the matter I raise does not come within the remit of the Minister of State, Deputy Peter Power, he will find it as interesting as other Members. Although the case brought to my attention recently is specific, similar circumstances apply in many other cases.
The person concerned paid a small number of social insurance contributions when he was aged 16 or 17 years in the 1950s. However, having made 24 contributions in 1958 and a further five contributions in 1959, he moved to England either on economic grounds or to gain new experiences. He worked in England until 1980 when he returned home because his wife had been left a farm. At the time, farmers could not make voluntary contributions and, as a result, he was prevented from making social insurance contributions, even if he had wished to do so. In other cases, people who return from abroad do not earn enough to make contributions.
In 1994, the person in question started to make contributions again. However, as he had made a small number of contributions in the 1950s, his entitlement to an old age pension is calculated based on an average over the 50 years covered by contributions, as opposed to the 14 years since he had returned to Ireland. It should be noted that it is possible to buy contributions. The person's employer took an honourable approach by ensuring the contributions were made at the time. Not every employer would do be so honest but it was this that resulted in the person being denied a full entitlement to a pension. Had he paid ten years of stamps he would have been entitled to a full pension. The fact that he had been working seems to have militated against his being entitled to a full pension. In the post-Good Friday Agreement era I believe we should be addressing the realities of the 1950s and 1960s in terms of the consequences in old age of actions taken in their youth by persons such as this. I wonder whether, instead of having a pro rata recognition system, we might have full recognition for UK contributions. This man had a strong work ethic, and his cross-frontier contributions reflect this from his early teens right through to retirement age. It seems wrong that having had this work ethic in harsh times he now finds himself penalised when he reaches old age.
I was trying to ascertain how many people might be in the same situation. I know there are two related but different issues here. Take the marriage ban, for instance. Females worked for a while, then the marriage bar was introduced and they were not allowed to work. Then, post-1974, they were able to work again. Such women, facing into retirement, are now faced with the same issue. Probably a large cohort of people are involved. Separating the two issues again and taking the example of those who went abroad and continued to work, I wonder whether, given European legislation and the mutual recognition norms, we are prepared to review this category of citizen. Obviously, I would love to see the marriage bar people catered for as well.
We should highlight for today's youth the realities of the contributions scheme given the current economic climate, which reflects in some respects the realities prevalent in the 1950s and 1960s as people again start talking about going away. We have to inform them that if they are making contributions here and they go away, they will have to be careful. As long as they keep their entire working career in Ireland they will be all right. If not, they must be careful. There are a number of angles to what I am asking. Can we highlight the realities for the youth so they are aware of the consequences of the averaging system that exists for contributory pensions? We have dealt with anomalies in the system before and I hope it is possible to examine the numbers in tandem with the costs involved, as well as examining the option of a cross-frontier approach to mutual recognition of working contributions over a lifetime.
Again, it seems unfair that where a person may be short a few contributions, he or she may buy them up while in many instances, having made a few contributions in the late 1950s, a person can be precluded from getting a proper pension for the years he or she paid in. The anomaly underlines the fact that such people, while trying to do things in a straight and honest fashion, are not being rewarded for it.
I fully take on board the main points of the Adjournment motion and certainly will convey back to the Department the Senator's requests for information.
To qualify for the maximum rate of the State contributory pension, a person must start paying social insurance at least ten years before pension age, make a minimum of 260 contributions at an appropriate rate and achieve a yearly average of at least 48 contributions, paid or credited, on the social insurance record over his or her working life. Reduced pensions are paid to those with yearly averages as low as ten contributions. The objective of these conditions is to ensure those qualifying for pensions have made an adequate and ongoing commitment to social insurance in Ireland.
It should also be remembered that people with a long working history in the UK or other countries more than likely will be in receipt of a pension from that country. In the UK, requirements for the full social insurance pension are being eased from 2010. Apart from the standard qualifying conditions, a person's entitlement to a pension can also be assessed under a number of arrangements which are in place to cater for those with social insurance contributions at different rates, with contributions from other EU member states or countries with which Ireland has reciprocal social security agreements and with pre-1953 contributions.
The manner in which social insurance contributions from other EU countries are to be used in assessing eligibility for a pension is laid down in Regulation (EEC) No 1408/71. The same general principles are applied in the reciprocal agreements Ireland has with a number of other countries. Under these regulations contributions made in another EU country are added to Irish contributions and a notional rate calculated as if all the contributions were made in this country. A formula is then applied to this result which is designed to ensure the actual Irish pension a person qualifies for reflects the level of Irish social insurance contributions contained in their overall insurance record. In all, about 22,000 pensions are paid on this basis.
The pre-1953 pension is a special measure designed to provide a pension to people who would not otherwise qualify for any payment. These pensions require payment of just 260 contributions, one of which must have been made before 1953. Payment is made at half the full standard rate. The scheme has been of particular benefit to people who emigrated in the 1950s. I know that Senator Cecelia Keaveney has championed this issue for a long period.
Those with no entitlement to a contributory pension or whose entitlement is much reduced may have their position assessed under the means-tested non-contributory State pension. At present more than 14,000 people receive this payment in addition to a British retirement pension.
The average contributions test is a key qualifying condition at present but it is accepted that it can give rise to an anomalous situation in that people with the same level of overall contributions may well qualify for very different rates of payment. Accordingly, the test can have a serious impact on pension entitlements, especially where a person has a significant gap in his or her overall record. This applies not only to people who may have emigrated and returned later to Ireland, but it can, for instance, also impact on people who may have been out of the workforce for a long period. The issue is discussed at length in the Green Paper on pensions which was published in October last year, and a number of possible reforms are put forward for consideration.
In deciding on what is a reasonable contribution for a pension, we must remember that the contributory State pension is a very valuable benefit. It is important, therefore, that we ensure those who qualify for the payment have contributed to the fullest extent possible.
The Government has indicated it will finalise its response to the pensions Green Paper by the end of the year and publish a framework for future policy on all aspects of pension policy. A review of the qualifying conditions for State contributory pensions will be an important element of such a framework.
I thank the Minister of State and the Department for the response. I know the answer will lie in the response to the Green Paper on pensions. To underline the words used by the Minister of State, the pension should reflect the level of Irish social contributions. To put this in context, I asked the Department of Social and Family Affairs in Sligo what the man would be entitled to had he not made the contributions in 1958. I was told it would be 98% of a contributory pension. Because he made a few contributions when he was 15 or 16, he will now be entitled to the equivalent of less than 50% so it is a significant issue. I am glad to have been given such a comprehensive reply and I hope the statement I have made on the Adjournment can be taken into account in the response to the Green Paper.
I am speaking on the need for the Minister for Finance the reassess the decision to cut tax relief on dental treatment from the higher to the standard rate of tax. The Minister of State will be aware what happened in the budget when tax relief was cut by about 50%. There is always a temptation for people to see dentists as earning a great deal of money. In some situations and in certain sectors they do not, however. They have had a pretty tough time, and I raised the issue of dentists only two weeks ago in respect of the refusal of the Health Service Executive to negotiate a contract with them. Now they find themselves in a situation where there is a 50% cut in tax relief for certain dental treatments. In the event, they say it will be very difficult for them to operate in areas such as orthodontics and periodontics, which are specialist areas.
Tax relief on dental treatment was always given at the higher rate and for a very good reason, namely, to encourage people to look after their health. This was effective. The danger now is that the reduction of the relief to the standard rate may result in a person who spent €5,000 on a normal course of orthodontic treatment for one of his or her children receiving only €1,000 in tax relief instead of €2,000, as was the case before the budget.
This situation is bad for the patient, the dentist and the economy, and I do not believe that the revenue raised from this will justify the reduction. There will be a problem with health. Those who must pay large amounts of money for very expensive treatments will simply not have it. This will have an adverse effect not only on health but also on employment in the industry. It is difficult to estimate the numbers employed who will be affected by this, but estimates show that approximately 9,000 are employed in the oral health industry.
If less is spent — I include spending on laboratories — there will be fewer people employed and more people on the dole, seeking work or emigrating. That is not a social effect we would welcome. It has been very easy to make sweeping cuts in the budget which look good in accountancy terms but they do not look so good when they come into effect. They also have some political kudos because it is easy to pick soft targets. Dentists are a soft target as people regard them as earning a large amount of money, but that is not the case in some specialist areas. We must be more sophisticated about the manner in which we address problems such as this. People must make proper returns but this measure is a false economy to the Exchequer.
Another effect, which I addressed recently, is the possibility of dental tourism, of which the Minister of State may be aware. It is an extraordinarily profitable business for people in Newry and Belfast. I returned from Belfast on the train recently and met four people I knew who had travelled to Northern Ireland for dental treatment because it was much cheaper. This measure will send people to Poland and Northern Ireland, which is an additional loss to the Exchequer and is something we must tackle. The differential is significant. It can be five times more expensive to have treatment here than in Northern Ireland. Those with time on their hands, such as older people, will travel across the Border for that and they will bring their children and grandchildren with them.
Dentists have met the Minister for Health and Children, Deputy Mary Harney, and the Health Service Executive on this and other matters, and they have said they will settle for a cap rather than a full reversal of the decision. They are not being militant; they understand the political and economic consequences of this problem. They believe a cap on the amount that could be claimed would be helpful and would encourage people to have necessary treatment. They also stated that the State offers grants of €120 million to doctors but nothing to dentists or their patients, and that they are the only health care professionals who received no support for including those over 70 in 2001.
People will be less inclined to go to the dentist or to bring their children for treatment. It may be a good idea for the Minister of State to look at the issue again and consider that it would be good for the economy and health to reverse it.
I am taking this Adjournment matter on behalf of the Minister for Finance, Deputy Brian Lenihan.
As Senator Ross is aware, the Finance Bill provides for changes to health expenses relief announced in the budget, which will be granted at the standard rate from 1 January 2009. There is an exception for nursing home expenses which will continue to be allowed at the marginal rate. Nursing home expenses are exempt from this measure to allow time for the new nursing homes support scheme to be put into operation before any changes are contemplated in relief for nursing homes. This initiative on health expenses relief will yield €120 million in 2010 and €150 million in a full year.
The changes provided for in the Finance Bill follow from the changes made in the Finance Act 2007, that is, the removal of the de minimis threshold of €125 for a single individual and €250 for a married couple. The Finance Act 2007 also provided for the removal of the requirement that there be a defined relationship between the taxpayer and the person who is the subject of the tax claim.
Standard rating health relief expenses will make the tax system fairer and more equitable for all taxpayers. There is a commitment in the programme for Government to increase the fairness of the tax system and this measure is being introduced in line with that commitment. The standardising of health expenses relief brings it into line with other reliefs such as those for rent, trade union subscriptions, medical insurance, third level fees and service charges. The standard rating of health expenses relief will result in better value for money for the Exchequer and will ensure that the relief will benefit the broadest range of taxpayers in a fair and equitable manner.
It is difficult to justify reliefs for one sector of society simply because they earn more than another sector. Health expenses relief is an expensive relief that has quadrupled in the past four years. It has risen in cost from €100 million in 2004 to €400 million in 2008. It is difficult to see how we can afford such a generous relief in these challenging economic times. There can be no doubt that the savings accrued from standard rating health expenses relief of €150 million in a full year will raise much needed revenue.
The Minister received a number of submissions from the dental profession setting out its concerns in this area. I will confine my remarks to the tax issues raised. The dental profession has sought the extension of the relief to routine dental treatments and has based the argument for this on a comparison with the relief available for routine visits to a doctor. However, routine dental treatment has never qualified for tax relief and dentists are not in competition with doctors. The cost of such a concession is estimated to be very high. In the current fiscal situation such a concession is out of the question.
Routine dental treatment for the purposes of the relief include scaling, extraction and filling of teeth and the provision and repair of artificial teeth and dentures. Routine dental treatment has been excluded from health expenses relief since the relief's inception in 1967. I am sure Senator Ross is aware that routine dental treatment is provided through Health Service Executive clinics and by private dentists on the HSE panel to persons who meet the relevant PRSI requirements. The service is now available free of charge to all medical card holders over 16 years of age.
Senator Ross also raised the issue of dental tourism, which has been an issue as long as I can remember. The cost of dental treatment in neighbouring countries has historically been lower than in Ireland. A significant difference in price is required for customers to travel to Northern Ireland for dental treatment and significant savings on costs would also be required for a customer to travel to mainland Europe for dental treatment. Nevertheless, I understand that this happens. It must be understood that there is a need for Irish dentists to be competitive.
I would also like to deal with requests from some dentists to have health expenses relief restricted to treatment undertaken in Ireland. The position is that tax relief is available for expenses incurred for treatment abroad. The reason for this is that not to do so would result in an infringement of the EC treaty. A claim could be made that not to extend the relief for expenses incurred for treatment obtained abroad could result in state aid claims or claims that such a policy places a restriction on the free movement of capital.
Some dentists have raised the status of dentists under the Competition Act 2002. This matter is primarily the responsibility of the Minister for Enterprise, Trade and Employment and it would not be appropriate for me to comment on behalf of the Minister for Finance in that regard.
Taking account of all the issues I have outlined, particularly with regard to equity and fairness, I am sure the Senator will appreciate that the Minister for Finance is not in a position to reverse the measure announced in the budget or provide the concession on routine dental expenses as requested by the representations of the dental industry.
The Minister's response was predictable. I am doubtful about his figures for 2009 and 2010. The proof will only come when we see the yield. The figures quoted were €120 million in 2010 and €150 million in a full year. If those figures turn out to be wildly exaggerated, which I suspect they will because of the effect of the change, will the Minister of State put it to the Minister for Finance that the changes should be revised?