Tuesday, 19 July 2016
Tax and Social Welfare Codes: Motion
That Seanad Éireann:- commends the Minister for Social Protection for planning to close the gap between self-employed and PAYE workers;
- calls on the Minister to implement a new social welfare stamp for the self-employed;
- calls on the Minister to introduce the recommendations of the Mangan Report;
- calls on the Minister to legislate in this regard and for all other related matters in the context of equality of conditions for self-employed and PAYE workers.
I welcome the Minister and I commend him and his predecessors on working to close the gap between self-employed and PAYE workers by increasing the earned income tax credit from €550 to €1,650 for the self-employed and to match the PAYE credit by 2018. The motion before the House calls on the Minister for Social Protection to implement a new stamp for the self-employed and introduce the recommendations of the Mangan report. I speak as a person who suffered because of the economic crash. Like many others who were self-employed, I had been in business for over 24 years and my business suffered through no fault of my own. The economic crash destroyed many lives. It was shocking to see the devastation of and impact on families that had worked hard all their lives when, through no fault of their own, their businesses were gone.
I recall canvassing during the election campaign of 2011 in Kildalkey outside Trim. A gentleman brought me into the front room of his house, which he used as his office for his business. He showed me the files of PRSI he has paid for his workers and those for the VAT and tax he had paid to the State. When he needed help for his young family, there was no help available from the State despite the fact that this man contributed all his life. It was shocking to see the desperation in that man's eyes and the tears rolling down his face because he could not afford to put food on the table, never mind paying his mortgage. It was harrowing. This happened all over the country. I know personally of self-employed people who went down a dark road but never came back - I am talking about suicide.
Ireland is the only country in industrialised Europe that does not have social protection for the self-employed. I realise there is no perfect fit to suit everyone when it comes to social protection for the self-employed, but we have to start somewhere. In England, the system operates on profits. After a self-employed person pays himself a wage and all the outlays, it kicks in. He is exempt for the first £7,000 profit but he gets entitlement to social welfare. On amounts between £7,000 and £20,000 profit he pays £3.30 per week and that entitles him to social protection. On higher profits over £20,000 the rate is 9%. That is only one example of how it is done in another country. Other jurisdictions operate on the basis of voluntary and mandatory contributions.
The Mangan report recommended that we introduce a stamp at 5.5% that would automatically entitle a self-employed person to sick pay or disability pay for nine months. After that, the person would have to be assessed for a longer-term payment. I am keen that we should introduce a new stamp - eventually rising to 5.5% - that would cover sick pay, disability pay and job loss.To introduce such a stamp in this year's budget, we could start off at a rate of 4.5% and then, while seeing how the economy and other factors perform over the coming years, we could plan to increase it to 5.5%. While I am aware it must all be costed, if the rate of universal social charge, USC, decreases by a further 1% in this year's budget, we will never get a better chance to introduce the stamp. I have spoken to many small and medium-sized enterprises, SMEs, of various types over the past six years. I have brought groups before the Oireachtas social welfare committee to speak on this issue and everyone is in favour of some form of protection for the self-employed. While the single self-employed are 100% behind this new stamp, the larger organisation representing businesses is in favour of protection for its members, albeit on a voluntary basis. This cannot work on a voluntary basis but must be mandatory, as nothing works through social protection that is voluntary. While I also understand that some self-employed people have companies or bigger businesses than the single self-employed person, consideration can be given to capping the contributions in order that such people pay no more or no less than a single self-employed person.
In fairness to the previous Minister, Deputy Burton, she lowered the threshold levels during the crash of the Celtic tiger and 22,000 self-employed people received social protection benefits. Essentially, such people were obliged to get a letter from their accountants and Revenue stating they had ceased trading. In certain cases, this was not possible because of financial restraints. The aforementioned 22,000 people who received social welfare benefits had not been paying contributions for this facility and those who were obliged to pay for this were the PRSI workers. Why should PRSI workers be obliged to pay for the self-employed? Self-employed people do not need charity; they wish to pay for their own contributions. Members are debating an issue today that should have been sorted out 30 years ago. My father had a small business in Kells and I remember the same issue, which has never been sorted out by whatever Government was in power and nothing has been done by previous Governments. Nearly one quarter of the workforce are self-employed and this figure is growing all the time. These people have no protection if they get sick, experience disability or lose their jobs. The Government asks such people to start new businesses, create new jobs and give to society. It is now time for the Government to put in place a safety net for them in order that there is a helping hand to get them back on their feet if something goes wrong.
It is an absolute privilege and duty and I am delighted to second the motion as proposed by Senator Butler. It merits putting on the record that since the first day I met Senator Butler, when he and I were both elected to the Dáil in 2011, he has been talking about, pioneering and bringing forward this issue. He has run with it consistently and should be proud he is now bringing it to a legislative stage. It is a great personal achievement and is something to which all Members aspire in different ways but he is the one who has done it. He has brought significant legislation to this House, which is a great personal achievement of which he can be very proud. I wish him well and congratulate him on that, as Members should applaud any colleague who is able to do something like this and does so.
At the outset, I concur with the remarks of Senator Butler on self-employed people, based on my anecdotal evidence from clinic work and meeting people during those terrible years. One case really comes to mind clearly but before getting into specifics, I came across many self-employed people, as identified by Senator Butler, who were in that dark place and were without income. One family comes to mind and it was a wonderful pleasure to meet the dad recently and to discover things are changing for him. While he is now a directly-employed person, the tide has turned completely. I recall one case in which the business was gone, the wife - who had had work in the past - had no further work and there were three or four children, one of whom was in a third level college in Dublin. It is a real case and I will not go into it further lest the family be identified but my point is Senator Butler's observations were and are real and sadly, will be real again. It is important that when those who have the courage to try to do something on their own initiative fall, there is a cushion in place to support them. It also merits stating they already pay 4% and in a sense, the de factoposition is they pay 4% for an S stamp for which they get nothing. Lest there be any misunderstanding about it, it is not as though they are beginning from a position in which they pay nothing for nothing. The starting position is they pay a lot for nothing.
In this Private Members' motion, Senator Butler has adapted the Mangan report to a good legislative framework in which he advocates beginning with a payment rate of 4.5%, which is not a significant increase on the existing rate of 4%. Moreover, he advocates introducing graduated changes to the payment rates from then onwards, until the rate of 5.5% is reached, in order that nobody suffers too greatly too quickly in the payment end. The significant point, however, is the new situation will provide income in the event of someone losing a job. It is important that this be in place because thankfully, not everybody is disabled. Thanks be to God that only a minority go through that challenge, in which they should be supported, but it is important that there be a payment for job loss. It also is important that disability payment, illness benefit and the other normal social welfare payments be available to them and I support that strongly.
Senator Butler also made an important point in his remarks on the falling rate of USC. The rate has fallen, is falling and will continue to fall, as it is part of the programme for Government to target this reduction in the USC rate at middle and lower incomes in particular. As the rate of USC falls, there will be potential to make this payment, as it would mean almost no change other than the benefits accruing to an employer. This is the sort of message that should be sent out, lest there be a scare in respect of this proposal based on a misunderstanding that a new tax - with no outcome - is to be imposed on struggling small enterprises that they will not be in a position to pay. The ability to pay aspect will be covered by the reduction in the rate of USC, while the benefits accruing makes it a measure that is to their advantage. It will not de-incentivise but if anything, it should slightly incentivise risk-taking because no one likes to go without a safety net of some form in life. That is why the insurance industry does so well and many people make a good living in insurance because everybody has a level of fear about the future. The fact that people would be covered for sick pay, disability pay and job loss is an incentive to take a risk. One does not take the risk while intending to fall into that category, far from it, but at least in taking the risk, one then has an expectation that a safety net is in place.It would, perhaps, make it easier to look one’s children or dependants straight in the face and say one would at least have a job loss payment or the equivalent of the jobseeker’s benefit in a doomsday scenario, or get sick pay in the event of illness or the disability payment if required. It is important also that one will be able to say there will be no net increased cost because of the universal social charge.
It merits repetition that Ireland is one of the few countries in Europe not to have what is proposed. It is part of a civilised, modern society. Some 330,000 self-employed people will stand to benefit from this pioneering proposal introduced by Senator Butler. This number is expanding all the time. It allows for an important fallback position for them and it will increase risk taking. We certainly do not want people going into bleak spots, as Senator Butler stated, but we also do not want a burden on the State. By making the payment, one is ultimately providing money to provide a cushion. The State would not be put into a position in which, in the middle of a recession, it would have to provide exceptional welfare payments to many desperate people through the community welfare office, for example.
It is important to acknowledge the good work the former Minister for Social Protection, Deputy Joan Burton, and others in the last Government did in this area, although it was not enough because enough could not be done.
I welcome the legislation. It is providing significant benefits although it is hoped people will not need them. I welcome the incremental introduction of the arrangement and the cushioning from the continuing fall in the universal social charge. I welcome also the fact that what is proposed brings us into line with the rest of Europe. Above all, it may be creating an incentive to be enterprising and to take a risk. It supports risk-takers. Without risk-takers, we will go nowhere. I do not have to tell the Cathaoirleach that if we do not have risk-takers in our economy, revenue will not accrue. We have to have that special type of person who takes risks. We cannot have them fall into nothingness.
I thank Senators Butler and O'Reilly for bringing this motion before the House. It is very close to my heart as a self-employed individual. I thank the Minister for taking the time to address the House.
I am solicitor but, if I did not know better, I would believe I was an agent of the Revenue Commissioners. The taxes I collect include stamp duty, VAT, employer's PRSI, employee's PAYE, my own income tax, the local property tax, and the non-principal private residence charge. For all this tax collection, I would get no services from the State if anything were to happen to me. Obviously, I am now Senator so my circumstances have changed. However, had I not been elected, I would be in the same position as Senator Butler and would not have any of the supports in question available to me or my family.
In principle, Fianna Fáil supports this motion, and it has been at the forefront in highlighting that our PRSI system needs to be reformed to extend social welfare benefits to the self-employed. Fianna Fáil published a Bill on this issue and discussed it during Private Members' business in the Dáil in April 2015. We believe the commitment in A Programme for a Partnership Government to introduce an approved PRSI system for the self-employed should be realised over the coming budgets. However, while we support this motion in general and have been vocal in our belief that social insurance needs to be extended to the self-employed, we do not fully concur with the view in the Mangan report that jobseeker’s allowance payments provide adequate cover to self-employed people given the risks associated with unemployment and the recommendation that the extension of social insurance to the self-employed to provide cover for long-term illness, ill-health or incapacity should be on a compulsory basis. Instead, Fianna Fáil favours extending the full range of benefits, including jobseeker’s benefit, to the self-employed through an opt-in system as opposed to a compulsory system. On a phased and voluntary basis, we propose to extend a full range of social protection payments, including jobseeker’s benefit and illness benefit, to self-employed PRSI contributors as part of a commitment to fostering an entrepreneurial culture, in addition to enhancing social solidarity.
Fianna Fáil’s proposals are on the basis that the self-employed will be able to opt into the existing class A structure, paying the rate corresponding to their income level. We propose they should be able to continue to make class S payments, as they currently do. The additional payment would equate to 4% for the self-employed with an income above €356 per week. When a self-employed person is starting off, he or she does not have a massive income. One's income for the first year may be €12,000. Making it compulsory for self-employed people to opt into a system they may not be able to afford is unfair. That is why we favour the opt-in system.
As part of the programme of extending benefits, we propose that limited recognition be given for class S payments made to date by self-employed persons. This should be done in a way that balances the need to assist the self-employed sector with the requirement not to unduly burden the Social Insurance Fund. It is apparent that reform such as this is most needed as it is crucial that we actively encourage entrepreneurship. At present, a major disincentive to potential entrepreneurs considering starting a business is the threadbare social safety net. This is an active impediment to undertaking the risk inherent to creating new businesses.
Our welfare system should support existing businesspeople and budding entrepreneurs who will lead the way in job creation in their communities. The current arrangement for compulsory social insurance has been in place since 1998. The self-employed pay PRSI at the class S rate of 4%. They are covered for the State contributory pension, the widow's or widower's pension, the surviving civil partner pension, the guardian's payment, the maternity benefit and the adoptive benefit. The schemes to which the self-employed do not have access cover the jobseeker’s benefit, illness benefit, partial capacity benefit, invalidity pension, health and safety benefit, carer’s benefit, treatment benefit and additional injuries benefit, including the disablement benefit.
As part of Fianna Fáil’s Private Members' motion in April 2015, the party sought, on a phased and voluntary basis, to extend the full range of social protection payments, including jobseeker’s benefit, illness benefit and invalidity pension, to self-employed PRSI contributors as part of a commitment to fostering an entrepreneurial culture as well as enhancing social solidarity. The self-employed will be able to opt into the existing class A structure, paying the rate corresponding to their income level. They will continue to make class S payments, as they currently do. The additional voluntary payment will equate to 4% for the self-employed with income above €356 per week.
Extending social welfare protection to self-employed people achieves at least two objectives. First, it secures a measure of social justice. Second, it reduces the risk for those entrepreneurs who wish to start up their own business by providing a safety net. This makes perfect sense at a strategic level. Fianna Fáil is committed to building an indigenous sector based on small and medium enterprises. However, we must put in place structural reforms to do so. Providing social welfare support for self-employed people should be part of that process. We must make Ireland’s business environment fit for purpose and as attractive as is feasibly possible. We need to address the issues that make it difficult or too risky for individuals to start a business. We need to create an environment that is conducive and appealing to self-starters, an environment that has the potential to create further jobs and bring money into the economy, towns and villages. Reforming our social welfare system to allow self-employed people to opt in to the class A structure is a vital step towards making the starting of a business more attractive and less risky to entrepreneurs.
Cuirim fáilte roimh an Aire. Níl a fhios agam an bhfuil mórán Gaeilge aige; tá seans go bhfuil. He is very welcome. We knew each other in a former world, that of aviation and transport. As far as I am concerned, he did a really good job there. What one sees is what one gets. I very much appreciate that.
I very much support the motion of Senators Butler and O'Reilly. Passionately as an entrepreneur, and having worked with entrepreneurs for the past 20 odd years, I believe taking some risk out of entrepreneurship is critical. This proposal is one really good step in that direction, as Senators Butler and O'Reilly already mentioned. It is not that one wants a fail-safe way to go – far from it – because it is in the nature of entrepreneurs to take risks. Although they want to take risks, they should not be left with absolutely nothing if things go wrong. A man once told me something in this regard that made a lot of sense. He said many entrepreneurs he knew lost their health, wealth or family.That was true for many people in the recent recession, from 2006 to 2011.
One of the things we need to do and which we can do under the Minister's leadership is to create a situation that reduces the risks for entrepreneurs, which would get more people involved in the system, more people willing to jump outside their comfort zone and willing to take a risk on it. One of the last things we need is where somebody has their home or whatever - personal guarantees - locked in with regard to bank loans and so on. They will go out on a limb and in this context this is the first move to give some sort of backstop to entrepreneurs and businesspeople, so that at least they can get some sort of social welfare in the event of becoming unemployed, which many people did.
There are over 200,000 SMEs in Ireland. They employ, on average, 7.3 people each. That is over 1.6 million people. There are 2 million people employed in the country altogether. That means that between everything else outside of SMEs there are about 370,000 people employed. Who is our key resource in terms of employment and in terms of funding the Exchequer? By the number of people these entrepreneurs employ, they generate over 90% of the total income to the Exchequer, between PAYE and PRSI, as well as paying the full whack of corporation tax. They do not get it reduced to 4% or anything like that. Not only that, but they are paying their own PAYE on any salary they take out, over and above the corporation tax. These people are working 60, 70, 80 and sometimes more hours a week. I would not like them to do a calculation to see how much they are getting per hour, because many of them would be well under €10 per hour.
This is a huge support from the Minister. I greatly appreciate what he has brought to the table. It is a very important day for entrepreneurship in Ireland, not only for existing entrepreneurs but for those who will decide to take off the jacket and try something new. At least there will now be some backstop for them if it does not work out.
I have done some research on this because it is an area I am passionate about. Just over 90% of SMEs that closed between 2006 and 2011 were in rural Ireland. There is something fundamental about that. Will the Government, and the Minister, start looking holistically at what can be done? They are the backstop not only to creating but to keeping wealth and employment in rural Ireland. The vast majority of businesses in rural Ireland are not the big companies, they are the small ones. They employ two to eight people. They are the real heroes of this country. They are the people who, until what Senator Butler has done now, have largely been ignored because they have had no voice. I thank him for giving them a voice.
I want to place on the record my support for this motion from Senator Butler. As Senator O'Reilly said earlier, he has been pioneering this for many years. He speaks from his own personal experience, so he comes from that angle as well.
I remember sitting in halls in the west with over 200 people who are self-employed. As a result of the economic crash, they were left destitute and there was no safety net for them. At that stage, because of the constraints of the crash, it was difficult for the last Government to solve the problems along with everything else but we are now in a different space. I commend this motion and I commend the Minister for the efforts he is making in regard to this and in the area of pensions as well. We are in a position where issues need to be tackled and to be planned for.
The main message here, as Senator Ó Céidigh touched on, is that self-employed people do not, in the main, run big companies. They are builders, farmers, fishermen, doctors, dentists, electricians, plumbers, mechanics and shopkeepers. They need to be looked after. They are the lifeblood of our economy as much as the big multinational companies. The current stamp paid by this category is, as we all know, 4% of reckonable income and provides cover for contributory widows' and widowers' pensions, the State pension and maternity benefit, but it does not cover unemployment and sick benefit. The big issue at that meeting was that none of them could get jobseeker's benefit either. I know that was adjusted to a certain extent and some would get it because of lowering of thresholds, means testing and all of that, but the advisory group on tax and social welfare examined the options for extensions of cover to the self-employed and found it was warranted in the case of long-term sickness or injuries. It recommended, as has been said here before, an increase of at least 1.5%. I know ISME came out strongly against it at the time and said it should be optional. I would not agree with this. In Ireland most things that are optional are not as effective and a way needs to be found to implement it for everybody on an equal footing. We all accept that providing a supportive environment for enterprise and employment is fundamental to a full economic recovery in this country. We need risk-takers, but those risk-takers need a safety net.
As we pointed out already, it is those who create one or two jobs and the small self-employed who employ a few people who are more likely to be more influential in the regional and rural areas. It is important that the role of entrepreneurs, the self-employed and small family businesses is central to our economy. There is a commitment in the new programme for Government to introduce an approved PRSI scheme for the self-employed. This motion is very timely. There will be a public consultation process soon, I understand. We all accept that change is needed. The status quocannot be left as it is. It is not acceptable. We need an equal playing field for our self-employed. These proposals, if adopted, would be a very good start for that. As has been pointed out, most countries have a form of this already and it is time we introduced it as well.
Gabhaim buíochas leis an gCathaoirleach, the Minister and his colleagues in Fine Gael, who are bringing this issue before the Seanad this evening. I have shared their experiences, especially in the sad times, when there were people who have been made unemployed queuing out the door of clinics. We need to do something to help them, but I felt inadequate in regard to those who were self-employed. I could not do anything and had to watch them spiral, taking hit after hit, and losing their families, their homes, their businesses and often, tragically, a lot more than that. It is important that something has been done. I would like to outline our support for the measures proposed. It is not before time for such measures to be brought forward. They will go some way towards providing security and a safety net for the self-employed workers across the country. Similarly, I would like to make our support for the self-employed sector known. Just under 20% of employment in our economy is made up of self-employment.They drive employment and sustain local economies in every city, town and village. Entrepreneurs are risk takers who put their heads on the line to try to drive the country forward. While we recognise the importance of transnational companies and foreign direct investment in creating jobs, small and medium indigenous firms are the real drivers of local economies and should be supported and protected because they also provide the potential for the growth of Irish transnational companies.
I hope the motion will resolve the issue that arises in the provision of long-term benefits in cases of sickness or injury. We must have a wider discussion on the improvements we need to make to assist the self-employed and how the proposed extension of benefits should be funded. The Mangan report, the recommendations of which the motion proposes to implement, suggests PRSI rates for the self-employed be increased to fund the benefits that would be provided. Clarity is required on this issue because the Fine Gael Party is opposed to increasing PRSI rates for the self-employed and has consistently argued that employers need cash to pay wages and create jobs. Senator Ray Butler will probably argue the case for reducing universal social charge, USC, rates. That would be the wrong move as we need revenue for investment.
I note also that the Fine Gael Party manifesto in the previous general election did not refer to self-employed PRSI rates but instead proposed an increase in the tax credit available to the self-employed. Fine Gael seeks to reduce the PRSI rate paid by employers for their employees as a means of funding the proposed increase in the minimum wage. In this regard, I note the proposal by the Low Pay Commission to increase the minimum wage by 10 cent per hour, which is an insult.
The position of the Fianna Fáil Party does not differ significantly from that of the Fine Gael Party, which is not a surprise. Fianna Fáil refers to protecting the self-employed to achieve a measure of social equality. Somewhat different, however, is its suggestion an opt-in clause be introduced for self-employed persons in PRSI class A. This would require an additional PRSI contribution of 4% of income. How many self-employed persons would be willing to pay this additional amount? That needs to be clarified.
Sinn Féin has long called for changes to be made to allow self-employed persons access to more sustained benefits. That said, a serious conversation is required on how these changes would be paid for. PAYE workers currently pay PRSI at a rate of 4%, while their employers pay a further 10.75% on their employees' behalf. We could end up with a scenario in which PAYE workers pay significantly more than self-employed workers for the same benefits. Sinn Féin is more than happy to extend benefits to the self-employed and encourages such an extension, but the self-employed would have to make a contribution towards the cost of doing so. There is no better time to introduce this change because pay rates for the self-employed are increasing much faster than those of employees in the public and private sectors. I stress, however, that no one should be forced into joining any new system at this time. It should be accessed on an opt-in or voluntary basis. I am fully cognisant, for example, that numerous self-employed persons are members of income protection schemes and find these to be adequate to meet their needs.
Where do we go from here? It is a bit rich of Fine Gael to introduce this motion when the party has been in government for more than five years. Despite recognising the failings of the current system, the party has done nothing to address them thus far. I commend the motion, belated as it is, and hope it will be accepted.
The Minister has indicated he plans to close the gap between the self-employed and other workers. The time for planning is long past; self-employed persons need action. Fianna Fáil and Fine Gael are essentially in government together and, combined, the two parties have sufficient numbers to enact legislation without delay. It would not be rocket science to implement the recommendations made in the Mangan report, as provided for in the motion; therefore, why not do so? The cosy agreement in the confidence and supply arrangement includes a commitment to introduce a PRSI scheme for the self-employed and provide a supportive tax regime for entrepreneurs and the self-employed. This begs a question, however, namely, what is the point of using Private Members' time to discuss this issue when the Government and Fianna Fáil can introduce legislation to provide for it? Sinn Féin will certainly support progressive measures to help the self-employed sector. It may be the case that the motion is nothing more than a toothless public relations exercise aimed at allowing Fine Gael Senators to look good in the eyes of the business community and that nothing definitive will come of it.
I commend Senator Ray Butler for tabling the motion. I also welcome the Minister.
A number of positive measures have been proposed in the motion. I note that the programme for Government includes a commitment to close the gap between the earned income credit and the PAYE tax credit. This is a positive proposal, primarily because these are flat tax credits which have the potential to benefit self-employed persons on lower incomes more than others because any increase in the tax credit would make more of a difference to them. It is important to maintain this principle by providing tax credits rather than tax reliefs.
I support the recommendations made in the Mangan report on this issue and it is good that they are being advanced. However, we must also pay attention to the language used in the report. It is important to be a little more rigorous and avoid using language that suggests the self-employed do not get anything. As the Mangan report made clear, while this perception is common, it is not accurate. For example, 20,000 claims for the means-tested jobseeker's allowance were made by self-employed persons between 2009 and 2011, of which 85% were successful. It is important, therefore, that the language used in this debate be accurate and avoid creating an unnecessary divide.
In terms of the concrete measures proposed in the Mangan report, the document is nuanced and thoughtful. For example, it examined the means-tested jobseeker's allowance and found it to be an adequate measure, while also identifying that long-term sickness and injury cases were not adequately served under the current system. The report recommends an increase in contributions to deal with the issues of invalidity, partial capacity and disability payments. I note also that the report identifies 1.5% as the minimum increase in contributions required if self-employed persons are to be allowed to access benefits in the manner proposed. It is important to bear in mind that the report also proposes moving towards increasing the rate of PRSI paid by the self-employed to 5.5%. We must keep on track to reach the 5.5% target and achieving it would mean ensuring we would not stall when it reached 4.5%.
I agree with previous speakers who argued that PRSI rates for the self-employed must be decoupled from the universal social charge. It is important not to mix up the USC and employee contributions by linking the former with any increase in contributions by self-employed persons. We are discussing measures specifically related to PRSI and should focus entirely on that issue.
On payment levels, it is a matter of concern that Ireland has one of the lowest levels of income from PRSI in Europe. The 14.5% PRSI rate for PAYE workers which is split between employees and employers at 4% and 10.75%, respectively, is much higher than the proposed self-employed PRSI contribution of 5.5%. While I support the motion, it is important to bear this differential in mind because we must not hollow out the revenue generated from PRSI. We should also consider other measures or areas to generate increased income from PRSI. Organisations such as TASC have made proposals in this regard and perhaps these might be examined in the future.
I have one other concern which presents an argument both for and against the motion. All available evidence shows that the level of bogus self-employment is on the rise. While we have heard about entrepreneurs and risk takers, there are other workers who have risk thrust on them. For instance, construction workers and lone providers of services for a single employer are frequently in self-employment. Only two weeks ago, the House discussed legislation which included measures to strengthen collective bargaining and the rights of freelance and self-employed workers. I hope the Bill in question will receive Senators' support when it is brought before the House again.That argument about bogus self-employment makes the case that this is extremely necessary because many people can find themselves in very vulnerable positions. It is important that the position be monitored and tracked in order to ensure people do not come under pressure from employers to register as self-employed in order to lower the overall PRSI contributions being made. This is an issue to monitor carefully, and I know Senator Butler is aware of that concern.
We talk about voluntary contributions, an issue which impacts upon many of the same people who are affected by these matters. We have seen the huge obstacle of voluntary contributions added to this in that it has become more difficult to make these contributions in recent years. The number of previous contributions that need to have been made has almost doubled to 520. This is an issue that affects the self-employed but it also strongly effects women, for example, those returning to the workplace. We also see that those who, like me, have moved between self-employed and employee status can find themselves trapped in a self-employed status from where it is difficult to make up those gaps in higher-rate contributions that would allow them to have an adequate pension. This issue should be examined in tandem with the others to which I refer by the social protection committee.
The final part of the motion refers to the importance of the equality of conditions for self-employed and PAYE workers. I remind the House of the commitment to gender equality and I urge that there be full gender-proofing of these proposals. With reference to gender equality and as we look to the idea of a new social welfare stamp that allows for the contributions of the self-employed, we might also revisit the question of a care credit which, again, is a stamp that would recognise the contribution made by carers in our system. That would be part of an overall reform within social protection.
I commend Senator Butler on introducing the motion. I look forward to the issues involved being discussed in more detail at the social protection committee and to their being progressed.
I welcome the Minister. I compliment Senator Butler on bringing this very worthwhile motion before the House. Senator Reilly referred to the self-employed as being risk takers, which is a very valid term. When we think about it, they are the ones who take risks, who invest their own finances and who start their own companies, which might just have one employee or 30, 50 or even more employees. There is certainly a risk involved. Coming from a self-employed background, I am well aware of the associated issues.
I welcome the fact that the Minister is willing to take account of all of these points of view and to look at equalisation by 2018 between the PAYE worker and the self-employed. It has been pointed out that there are many different categories of self-employed, from the farmer and the electrician to the entrepreneur. It is welcome that there will be supports in place for SMEs and the self-employed.
During the recession, many of the self-employed fell on hard times. Many had not even separated their personal finances from the finances they had invested in their companies, which was a big issue. Under the previous Government, the cap was reduced for jobseeker's allowance but people still had to prove they were not working a full week, which is from four to seven days. For the self-employed to prove that is very difficult, given that some people might work only one day in a particular week and then work three days the following week. The latter means it is difficult to keep control and to prove the actual position. It is important that the protective net provided to PAYE workers is being extended to the self-employed.
A key element of all of this is ensuring that self-employed people are entitled to the same as PAYE workers. This matter has been ongoing on since 1986. It is now 2016, so it is good that we are heading towards an end. I see this in a very positive light. The 2011 census showed that there were some 306,000 self-employed people. I am sure the number has increased since then, although I do not know what the most recent census figures indicate in this regard. In 2009 some 16.4% of self-employed people were at risk of poverty, which is quite high and reflects the fact many could not access payments.
Other small things would mean a lot to those who are self-employed. For example, PAYE workers are entitled to two optical tests every two years and also to dental appointments. Small changes in these areas could make a big difference to the self-employed, especially those who run smaller businesses. The main point is the cohesiveness of the welfare system. It is positive that we are at last giving a leg-up to the self-employed. By giving them that support, it will encourage them and will be a positive in terms of their expanding their businesses, which, in turn, will lead to greater job creation.
This is a very interesting debate. To follow up on Senator Higgins' point, bogus self-employment is increasingly becoming an issue. Hardly a week goes by when I do not meet somebody in the construction industry, the IT sector or the media who is being forced down into bogus self-employment. They are taking all the risks and getting none of the benefits. This is an increasing problem. Such workers need to be protected and I look forward to proposals coming forward to provide such protection. It is the real race to the bottom to force plumbers or bricklayers working on building sites to become self-employed. The same applies to people providing IT services to major firms. This is a way for firms to reduce costs in respect of PRSI, holidays and so on, and to put all of that pressure on those I call the bogus self-employed.
I am delighted that we are having this debate. Like those who have spoken so, I believe that a small enterprise starting off which takes the risk to create work not only for one person but for other members of their families and their communities should be rewarded and assisted at every opportunity. However, we also need to have a very honest conversation in this regard, particularly as to the cost involved. The question of an opt-in nonsense. I believe in social solidarity so whether one can opt in to pay a tax is a non-runner. The strong help the weak. A company that is operating strongly should pay PRSI if there are to be benefits for the self-employed. Those self-employed people who are in a precarious position will obviously opt in and those doing well will opt out. Where is the social solidarity if that happens? The notion of an opt-in is a total nonsense. If we introduce it, then it must be for everybody and everybody must pay. Let us have that truly honest discussion.
Senator Butler referred to a 5% stamp. If that is to be the case, can I have a refund please? May I have my 9% back? For somebody in employment, the PRSI package is 14.75%. Let us be honest. The cost of the benefits for an employee is 14.75%. If someone is to get the same benefits by paying 5%, it is a nonsense. Let us have a real discussion on this. If people want to opt in to PRSI and get all the benefits, that is the cost.
Senator Higgins made another good point. There is a constant argument that there is a rural-urban divide or one between the self-employed and employees. It is said the self-employed get nothing. I have met so many self-employed people who say "I get nothing". Yet, when one goes through the benefits, they say they did not realise that, for example, they get a pension.A contribution for the pension to get a contributory old age pension of €238 per week is a real benefit, but people are not aware that there are benefits for paying that stamp. People conveniently forget that, as Senator Higgins said, over 20,000 qualified for a means tested social welfare payment. An employee only gets a social welfare payment for the first nine months for their PRSI payments. Then they go to the same scheme as the self-employed, so there is not a great difference.
If we wish to be honest with people who are risk takers, let us have that conversation about the benefits they will gain for their contribution and what the true cost is. When I have had that discussion with self-employed people they have told me clearly that they are not prepared to pay anything relating to the true cost. If one talks to employees, they say they would far prefer to pay 5% instead of 14.75%. Let us have a true and honest conversation about this. People will say that the employer's contribution tops up the employee's, but that is part of the employment package and is part of the overall cost of an employee. That is where the overall percentage arises. When we go to public consultation we should have honest answers. Let us have that type of new politics, to use those much maligned words, where we honestly tell people the cost and the benefit and explain that social solidarity does not work unless everybody pays. There is a real and significant cost for the self-employed if they opt in, and I believe they should opt in. In fact, they should be in it. I do not believe it should be an option. In social solidarity most people should try and help weaker members of the community and provide a safety net.
As I travelled around and spoke to people in Dublin Bay South during the last general election campaign I spoke to many people who are self employed. As soon as I spoke about the real cost of paying for the benefits of PRSI they immediately said that was not for them and that they preferred to pay the lower cost. However, if one speaks to somebody who has gone through the trauma of losing their business and losing everything, they tend to say, "If I had known that safety net was there, of course I would have paid into it", so there are two huge alternatives. Something else I have noticed is that the employers' groups have not been banging down my door with regard to increased payments of PRSI for the self employed. It appears to have gone over their heads, because their members are saying they do not wish to make any additional payments.
The sentiment of the motion is correct. There should be a safety net for everybody, but there is a cost. If we wish to do this honestly, we should put that out for public consultation and tell people what the true cost is. I thank the Minister for coming to the House.
Much of what I wish to say has been said by other Members, so I will not repeat the valid and useful points made. However, there are a number of matters that I hope to highlight to the Minister. I support the motion and I thank Senator Butler for tabling it. He articulated his point very well. In fact, all Members, although they had slightly nuanced positions, are sympathetic to the idea that if one pays into something one should get something and if one does not, one should not.
I am sure that by now the Minister is familiar with all of the rates of PRSI and how they are calculated, although I will not be testing him on that. Having 11 rates is quite complicated, and within that there are various credits, tiers and so forth. We must be honest enough to state that PRSI is no longer pay related social insurance at all. It is not pay related social insurance because it is applied to everything, including unearned income, rent, dividends and various other things. We should tell everybody that it is no longer pay related social insurance but income related, or whatever other term one wishes to use, social insurance. It is no longer applied to one's salary cheque or one's earned income from one's main employment or income source. The self employed pay class 5 which is 4%. I take the point the previous Minister in the Department of Social Protection made that the cost is 14.75%, but the employer pays 10.75% of that-----
-----and the employee pays 4%. A self-employed person earning X amount pays 4% and an employee earning X amount pays 4%. That is what happens to the pay cheque of the employee versus the earnings of the self-employed person. The difference is that the employee paying class A at 4% gets all types of benefits, and rightly so, but the self-employed person does not get any of those benefits.
If one looks at the Department's website, welfare.ie, to see what one can get under the class S contribution it is virtually nothing, except that one might get a medical card, rent supplement, back to school footwear and clothing allowance, exceptional payments or jobseeker's allowance but not jobseeker's benefit. If somebody is earning €100,000 in a multinational company and is made redundant or is obliged to leave the employment, they will get benefit based on what they paid in and, indeed, on what their employer paid in. They get it regardless of what income or assets they have or do not have. They will get paid for a certain period of time after they leave the job. A self-employed person who has paid their 4% and, if they happen to have been prudent as all Governments advise people to be, has tucked some money away will be assessed on that money and will not receive the benefit because they have some money. There is a split in that regard. I ask the Minister to examine the entitlement under PRSI.
It is important that we encourage people to work for themselves and to create employment for others. One often finds a situation where the self-employed person employs other people and those people are on better benefits than the self-employed person. If the business goes down, the self-employed person does not get anything like the benefits their employees receive. We must ensure that self-employed people are genuinely sick and are not simply deciding to stop working and expecting all of the benefits. That applies equally to employees. Very few people wish to go on jobseeker's payments if they can earn more in their private capacity. The system must make that more attractive and be less of a disincentive for people who are working for themselves or considering working for themselves to opt to do that.
Ultimately, the people who are creating jobs and employees by expanding their business are the people who raise the revenue, along with the multinationals and in addition to the other forms of tax we raise. They generate the wealth in this country to allow us to have the decent social welfare system that the Minister outlined last week. We appear to be discussing this every Tuesday evening with the Minister, as it was statements on social protection this time last week. The Minister needs the income from all of the people creating employment and from the tax, PRSI, universal social charge and so forth from all of their employees to come back into the system to ensure that the social solidarity mentioned by other speakers is there for the people who need it.
I commend the motion. Parts of it possibly do not go far enough but I support its intent. I hope the Minister will take on board some of the points I have raised.
I welcome the Minister. I commend Senator Butler for putting this motion before the House. It is a topic that has been around since time immemorial and it must be dealt with. I will discuss it in a practical way. I was self employed for many years and, as an accountant, I worked with the self employed. They were my bread and butter, my business.
There are anomalies that must be dealt with. The stamps we are discussing are the S stamp for the self employed and the A stamp for an employee. One can basically boil it down to that. If somebody is on an S stamp, the only benefit they qualify for is the old age pension. It is not correct to say that if one is on an S stamp one qualifies for nothing, because one qualifies for a contributory old age pension. That is similar to somebody on an A stamp. If one is on an A stamp, which means one is an employee, one qualifies for the contributory old age pension, and rightly so. In addition, one qualifies for other social welfare benefits. One of them is jobseeker's benefit, which means that if one loses one's job one is entitled to receive up to €188 per week, depending on one's family circumstances, for either six or nine months, depending on the level of contributions over a period of time.
Equally, one is entitled to invalidity pension. One must be on an A stamp for that. One can qualify for it if one can never work again. There is a small anomaly here. It is called "invalidity pension", but in essence somebody can receive it at a much earlier age. However, one must have stamp A contributions and up to 48 in the previous year.S stamp contributors do not qualify. Equally, one qualifies for disability benefit. With an A stamp, one will qualify for anything that is stamp-related, but with an S stamp, one does not qualify. If we look at it on a basic human level, with an S or an A stamp, one qualifies for the contributory old age pension, which is fine. They involve the same payment of €560 over one's lifetime, plus an average minimum payment of €10. However, one does not qualify for jobseeker's benefit.
Many small businesses have been incorporated into limited companies for various reasons. In many cases, this is because the level of income is sufficient to warrant becoming a limited company. In this case, a proprietary director with more than 15% of the share capital must make S stamp contributions. There is no employer's PRSI to be paid. Below 15%, one makes A stamp contributions, like everyone else. A company may have two directors, one with 14% of the share capital and the other with 15%, of whom one qualifies for everything with an A stamp, while the other does not. I have come across many people with more than 15% of the share capital of a company who would be willing to make A stamp contributions. There should be a scope decision.
Another category is the self-employed who include someone operating a small business who does not sufficient money to justify it becoming a limited company. They can only make S stamp contributions. In a limited company, where someone has an A stamp, the employer's share of PRSI is tax deductible and qualifies for tax relief. If one is self-employed, one just makes S stamp contributions at the rate of 4%. We have all met people in small businesses which have failed. In many cases, they have spouses or partners and young children. Effectively, they are left with and qualify for nothing. They qualify for jobseeker's allowance, but it is means-tested and takes a considerable period of time to receive in many cases as it involves assessment after assessment.
The Manning report mentioned disability and incapacity. We need to look at job losses and ensure the payment of jobseeker's benefit for self-employed persons. For an employee, the employer pays at the rate of 10.75% or 8.5%, depending on the level of income, to be able to claim benefits, including jobseeker's benefit and an invalidity pension. There might be a way to create a hybrid with a low rate. The Manning report mentioned a figure up to 5.5%, but it would only cover disability, incapacity and illness. Perhaps there might be another rate. Perhaps someone who is self-employed might qualify for jobseeker's benefit only for three months.
I find that the biggest problem in the case of people whose business goes is that they have fought for month or years with banks and Revenue to hold onto the business, that they have done everything possible to keep the business going and that by the time it fails they are the end of the line. They are financially and emotionally wrecked. Suddenly they must go to the local community welfare officer and make a claim for jobseeker's allowance at the local labour exchange. They are put through something which needs to be costed but at which we need to look.
Senator Alice-Mary Higgins made reference to the 20,000 people who qualified for jobseeker's allowance. It is of varying amounts and means-tested. They might be receiving a nominal amount. The devil is always in the detail. Senator Kevin Humphreys also made reference to this issue which has been raised by Deputies since time immemorial and it has always come down to cost. What is the cost of providing for the self-employed? If more than 20,000 self-employed persons were to claim jobseeker's allowance, we would need to look at the net cost of putting in place jobseeker's benefit in some form. Qualification for invalidity pension could also be examined.
I very much welcome the motion tabled by Senator Ray Butler. It is also welcome that the Government is committed in its programme to providing for it, but the devil is in the detail. The Minister may not need to bite it off all in one big chunk; he could do it on an incremental basis, but he should provide for the payment of jobseeker's benefit in some form to the self-employed. I am speaking about people throughout the country who employ one, two or three people.
We must remember that if we want to foster an entrepreneurial culture, we need a person working for Google or a small business somewhere in Limerick to seek to become self-employed, but if they have small children, they cannot afford to take the risk because if the business fails and they have invested in equipment or property, they may not qualify for jobseeker's allowance because of the means test. The system must have a benefit in creating employment and encouraging people to set up as entrepreneurs. It must also have a benefit for people already in the system. If they run into hardship by the time the business fails, they will have gone to the ends of the earth to avoid it happening.
I very much commend the motion and have no doubt that something positive will come of it.
I welcome the Minister. I also welcome the motion and commend Senator Ray Butler for tabling it and Senator Joe O'Reilly for seconding it.
Everybody who has spoken so far has acknowledged that self-employed persons are often entrepreneurs. They are risk takers and innovators. As Senator Ray Butler stated, they are also the backbone of the economy and communities. They create wealth and employment. This must be taken into consideration when we look at what is being proposed. It is not simply what they would contribute by way of what we are seeking in the making of stamp contributions by self-employed persons, which would rise to be made at a rate of 5.5% over a period and give them some rights which I will discuss, but we must also think about all of the people they employ and all of the wealth and revenue for the taxpayer this would generate. We should not look at the issue in total isolation. A Senator spoke about the figure 14.5% divided between the employer and employee.
A total of 380,000 self-employed persons make S stamp contributions. What do they get in return? We know that their entitlements include longer-term benefits such as the State pension, widow's, widower's or surviving civil partner contributory pension, as well as a guardian payment, maternity benefit and adoptive benefit. Self-employed contributors will also be able to access the new paternity benefit to be introduced later this year, which measure the Minister of State, Deputy David Stanton, brought through the House earlier today. Benefits to which they are not entitled include, as has been mentioned, jobseeker's benefit, illness benefit, partial incapacity benefit, invalidity pension, health and safety benefit, carer's benefit, treatment benefit and occupational injuries benefits, including disablement benefit.
There is no doubt thaqt this is a huge issue for those who are self-employed. Sadly, I have met many people who lost their businesses during the crash. I am not here to score political points and we know that the economy is now recovering. The point is they really felt let down by the State. They felt that, having employed apeople, paid PRSI for their workers and having created wealth enabling tax to be paid, they were left high and dry. It is a real sore point for them. We as a Government would like to see entrepreneurs encouraged, as would most Members of this House. They are the risk-takers. We need to send them a strong message that we will support them. I am pleased that under the programme for Government we will seek to introduce a PRSI scheme for the self-employed, address the minimum wage situation and extend dental treatment benefit under the Social Insurance Fund. I also welcome the fact that we are working towards increasing the earned income tax credit from €5.50 to €16.50 for the self-employed to match that of PAYE workers. As my party's spokesperson for jobs, enterprise and innovation, I know that this lack of support must be addressed if we are to continue our recovery as an economy. It will have to be mandatory, as other speakers have said, otherwise, as the Minister well knows, there will be self-selection and those who believe they are not at any risk will opt out and those who believe there may be a risk will opt in and that will certainly skew the fund.
In Fingal, with which the Minister is very familiar, we have the youngest population in Ireland and possibly in the EU and, according to the last census, we had the fastest growth rate in the country of 8%. I remind Members that the best way out of poverty is a job. The small and medium enterprise sector is creating many more new jobs and it also creates wealth for the country. For instance, we have the Fumbally Exchange in Balbriggan where young entrepreneurs are encouraged to come and set up enterprises. They are supported in small units, with low overheads, to set up and start out on their own and when they get going they can move on. Bringing in this stamp would greatly help in taking the decision to make that jump.
According to IBEC, the two biggest areas that are probably most vulnerable as a result of Brexit are agribusiness and tourism and both of those fall very much into the small and medium enterprise sector. The people engaged in them are very much innovating, expanding and exploring new ways to add value to a product and creating new products. We need to support them and encourage that and take the pressure off those who are already in that sector, as they face the challenge of exchange rates changing. The bigger companies can hedge against this sort of thing but the small and medium enterprises find it very difficult to do that.
We have been very successful in developing our tourism industry, with which the Minister will be very familiar from his previous ministry and the very successful initiative, The Gathering, and also the very successful initiative taken by the Minister for Finance, Deputy Noonan, in reducing VAT in the sector to 9%. People come here because our country has natural beauty but the reason they keep coming back is their memories of the people and their kindness, genuineness and sense of fun. We want to continue to encourage innovation with respect to restaurants, cafés, bars, bed and breakfast accommodation, small hotels, artisan food production and many more enterprises. We want to encourage people to go out on their own and to ensure that they do not feel constrained by the bigger company and the setting. As Senator O'Donnell pointed out, many people working in multinationals have ideas of their own and set up on their own. I remember that when the Digital company in Galway pulled out, many of its employees set up their own business and were hugely successful. If this measure has been put in place then, it would have been a huge boom to them.
The Minister needs to address this issue. He has the support of Government on it. Senator Butler's motion is commendable. It will send a very strong message of support to the self-employed and to those who are considering becoming self-employed who want to innovate and explore new ways of delivering value. I commend the motion to the House.
Yes or even less time for myself. I support this important motion and I commend Senator Ray Butler on bringing it to the House.
The subject of this motion has been an issue for many years, particularly among those in the dairy sector and the wider agricultural industry. Farmers would feel exceptionally isolated if anything were to happen to them and they have felt that they have had to pay into a private fund which has become a major burden, particularly with the current situation in the agricultural industry. Senator Ray Butler's proposal will give those people some sense of security. That is what our role is about, trying to improve the people's quality of life in so far as we possibly can.
Today is probably a great day because not alone do we have this Minister in the House, and I welcome him here, but we had the Minister of State, Deputy Stanton, here earlier bringing forward unique legislation on parental benefits, which is also important. Parental benefits with respect to children's benefits will now be recognised for males. That will affect self-employed people as well. We have discussed two issues today that affect the core of our society, people who go out and drive enterprise to ensure we have employment. I would be hopeful that we can progress this matter. It is an important issue and, with some luck, it will be progressed in the next few years.
I welcome the Minister to the House. I congratulate Senator Butler on introducing this motion. It is a very important one and, as Senator Humphreys said, we need a debate on this issue. It is not that big of an issue but it is a very important one. We are having an outstanding debate here on it. During the crash a particular group of people, self-employed sole traders, were the hardest hit. They had no come-back and no protection. Many of them found they were not able to get money from anywhere. More than likely they had to pay the two weeks' statutory redundancy payments. The previous Government removed the statutory redundancy clawback for 70% of the two weeks that was allowed, which was introduced in good times but no allowance was made in bad times. Those self-employed sole traders could not liquidate and had no choice but to sell their house and pay the statutory redundancy payments to their employees. The vast majority of them ended up with nothing for themselves and they could not get anything from the State.
I thank the Minister for coming into the House I welcome Senator Bulter's proposal. This is a very important issue. There is no protection in the system for the group of people to whom I have referred. It is important that people can set up a business as a sole trader. They do not have the same protection as people who have a company. There are certain conditions laid down in company law and so on which probably makes it more difficult for a person to set up a business than to set up as a sole trader. This self-employed stamp is a very important issue. I commend Senator Butler on bringing forward this proposal. As Senator Reilly said, the self-employed create jobs and provide employment. As this has all been said earlier, I will conclude on that note.
I thank Senator Paddy Burke for sharing his time. I welcome the Minister to the House. Many fine points have been made on this issue and, for the most part, I agree with them. I commend Senator Ray Butler on bringing forward and spearheading this proposal at this juncture. This issue has been talked about for years.
We have approximately 380,000 self-employed. When I meet sole traders in the run up to an election or during the term of a Government they have a beef with this issue and I can understand the reason for that. The responsibility they carry has been well articulated, as has the risk they take and when they lose they tend to lose it all. For the most part, we are talking about sole traders who do not have the protection of the corporate veil. They are not big companies but small and medium enterprises. They are the people who make sure all the bills are paid and they may never get paid themselves.When they end up going to the wall, they have nothing. Whereas those in a failed business may be entitled to a means-tested payment, having wound up their business, they then must go through all the loops and the necessary paperwork to get a payment from the Department of Social Protection. However, as they had paid their staff, including making PRSI contributions on their behalf, the staff will get their social welfare payments. That does not smack of fairness considering the burden of responsibility of employers.
I agree with the point made by Senator Paddy Burke. The downturn in the economy impacted heavily on the retail sector and on sub-contractors. When they let people go, they paid out redundancies. At first the State reduced its share of the redundancy payment before it ceased the rebate to employers who paid redundancy. The employers paid redundancy from their own savings and out of their own pockets. We must treat people fairly. Workers contribute and employers contribute to PRSI. Sometimes the system is skewed in regard to the self-employed sector. Employers are so busy running their businesses and trying to keep everything going, they find they do not have a voice.
I say to the Minister "Well done". He is making a fine move and it will be remembered by people who find themselves in the very difficult situation of seeking a State payment.
Earlier, speaking on behalf of Sinn Féin, Senator Conway-Walsh said nothing has actually changed. It is important to realise the Social Insurance Fund income and expenditure for 2011 to 2016 showed a deficit of €1.4 billion in 2011, €2.084 billion in 2012 and €1.314 billion in 2013. This year, for the first time in six years, the income will be in excess of expenditure. This is proof of the numbers in employment as more people are contributing to the Social Insurance Fund. The expenditure from the fund is more than €8 billion. If we wish to include the self-employed in the social insurance scheme, we must ensure we have adequate funding to support them. In fairness, the self-employed are prepared to make a contribution. I agree with Senator Humphreys and other speakers that it must be compulsory. If people have the choice to opt out, the scheme will not work.
I, too, can recount a very sad case of a person who had worked for 40 years and never once received a State benefit, who had a business that could not generate any income and who could only get a payment of €2.50 per week from the Department of Social Protection. He was totally frustrated that he did not qualify for any benefit. That is wrong and it is time we made changes.
I wish to raise another issue, namely, maternity benefit for the self-employed. There is an anomaly in the scheme. If a baby is born before 29 March, the income of the previous year is taken into account in qualifying for maternity benefit. However, if he or she is born after the 29 March, the income for the year in which the baby is born is the relevant period. If the self-employed mother has not earned an income of €10,000 by the date the baby is born, she will not be paid the maternity benefit until the end of the year. She will not be paid the benefit while she is on maternity leave. That matter needs to be dealt with. The self-employed get frustrated with the social welfare system at times. I have dealt with this matter on two occasions previously in this House and there has been no movement on it. I ask the Minister to deal with it, now that we are tackling the entitlements of people who are self-employed. I again ask the Minister to look at this issue.
I commend the motion to the House.
I agree with everything that has been said. The self-employed are the unsung heroes of this country, those who have gone out of business and those who managed to survive because they took nothing from their businesses for themselves. I commend Senator Butler on tabling this motion. I have good news for him - we now have a Minister in the Department of Social Protection who lives in the real world and who will make it happen. He knows the scenario for the self-employed. He realises that the country will become great again because of the entrepreneurs and others who are prepared to take risks and who are willing to put their necks on the line and work not just during the week but also at weekends in order to create jobs. He realises that when, after all that, a business does not succeed, people need a fallback. We have a Minister who will make that happen. I look forward to it happening.
I thank Senator Butler, in particular, but I also thank all Senators for providing this opportunity to discuss the treatment of self-employed citizens under social insurance and income tax systems. I am encouraged by the fact that so many Senators turned up on a very sunny evening to speak on this very important issue.
This is an issue with which I have been actively engaged since assuming responsibility for the Department of Social Protection. There are, as Senators have said, almost 350,000 self-employed people in the State. They are a diverse group and include farmers, fishermen, tradesmen, sole traders, small business owners, professionals, freelancers, barristers and consultants. Some work part-time, others work every hour of the day, including at weekends. Some have other employment, most do not. Some are very wealthy - they are among the wealthiest in society - others, as Senator Ó Céidigh pointed out, probably earn less than the minimum wage on an hourly basis.
Underpinning the new partnership Government, is the commitment to job creation through, among other actions, the provision of a supportive environment for enterprise and employment. The role of entrepreneurs and the self-employed, in particular, will be central to this ambition. The programme for Government focuses on improving the position of the self-employed and this is not restricted to their access to social insurance. It also recognises the need to bring about equality between the self-employed and PAYE employees by increasing the earned income tax credit available to match that available to employees. This will be phased in over a number of budgets. It started in budget 2016 with the introduction of a €550 tax credit for the self-employed. I know that Senator Devine said there had been a great deal of discussion about the issue. I think the previous Government showed cause by getting the ball rolling in the most recent budget.
Core to the provision of a more supportive environment for the self-employed is the commitment in the new programme to introduce an improved PRSI scheme for them. Compulsory social insurance for the self-employed was introduced in 1988. Currently, self-employed people earning €5,000 or more in a contribution year are liable for PRSI at the class S rate of 4%, subject to a minimum annual payment of €500. This gives the self-employed access to a number of benefits, including: State contributory pension when they retire without a means test; widow’s, widower’s or surviving civil partner’s contributory pension for the spouse or civil partner of a deceased self-employed contributor; maternity benefit - I will certainly look into the issue raised by Senator Colm Burke; adoptive benefit, if they adopt; and guardian’s contributory payment. All of these are on the same basis as employees. The self-employed will also gain access to the new paternity benefit being introduced on 1 September. Speaking to self-employed people during the general election campaign, it seems that many are not fully aware of their entitlements. I propose an information campaign to resolve the position in this regard.I am not ruling out an opt-out element, but we would have to consider how many would opt in. There would be no point in doing it if people would not opt in as we would achieve nothing. One could not set the opt-in percentage so low that it would not generate the money needed to pay the benefit in the first instance. Like any opt-in system, it would cost more than a compulsory one. If it was compulsory, one would socialise the cost and spread it across more people, meaning that everyone would pay less.
Self-employed persons do not have access to these benefits. If they become ill or unemployed, they may instead access social assistance payments by establishing eligibility to payments such as disability allowance and jobseeker's allowance. However, they must pass what is often an onerous means test. Access to means-tested jobseeker's benefit payments for the self-employed was examined in the third report of the former advisory group on tax and social welfare which was chaired by Ms Ita Mangan. The group found that the current system of means-tested jobseeker's allowance payments adequately provided cover for self-employed persons for the risks associated with unemployment. I do not agree with this finding. Senator Alice-Mary Higgins was right to point out that 80% of self-employed persons who applied for jobseeker's benefit received it on a means-tested basis, but how many did not apply at all because they knew that there was no point in applying as they would not receive it?
How many only received small or nominal payments, as Senators Kieran O'Donnell and Colm Burke mentioned? A self-employed person with a working spouse on a modest income may not meet the means test and, therefore, receive no benefit for any period, whereas an employee on becoming unemployed would have access to non-means-tested jobseeker's benefit for nine months. That seems unfair. The scenario I encountered frequently on the doorstep during the general election was that of a self-employed person who, having lost a job, was not entitled to jobseeker's benefit because he or she had a spouse who was working. I hope I am not being sexist, but the classic example is of a man who worked in construction and whose wife or partner was a public servant, perhaps a nurse or in a part-time position. Because they had a second income coming into the house, the person who had been the main breadwinner received nothing as a result. This seems unfair and could be changed. I am sure the reverse also happens - for example, a self-employed small businesswoman with a husband who is working as a garda or something else.
It is difficult to figure out what unemployment means in the context of self-employment. I have been speaking to other Ministers from around Europe to find out what they do in their countries. Senator Kieran O'Donnell pointed to the experience with which we are all familiar, that of a self-employed person with a small business doing everything he or she can to keep it going, often depleting his or her own savings, mortgaging his or her own house and going to the gates of Hell in the hope business will improve. My Swedish counterpart has told me that, because Sweden offered jobseeker's benefits for the self-employed, people are incentivised to close their businesses sooner. One must bear in mind some of the effects any change would have. My Austrian counterpart touched on something which Senator Kieran O'Donnell referenced and is close to my thinking, namely, that we could extend jobseeker's benefit to self-employed persons but not necessarily on the same basis as it is applied to employees. It could be for a shorter period, meaning a lower cost, or it could require self-employed persons to pay into the system for longer than an employee, meaning that a person who has been self-employed and paying for ten or 15 years might receive a benefit that someone who has only been self-employed for a few months would not. We could design it in that way.
I intend to extend over a period the range of benefits the self-employed can access through the social insurance system. I wish to start by providing access to benefits in cases of long-term illness and incapacity, as well as to treatment benefits which Senator Maria Byrne referenced. This would assist a self-employed person who was injured or incapacitated during the course of his or her work, for example, a taxi driver or someone involved in a farm accident. It would provide people with a much stronger safety net to protect them in the event of injury or disablement. To pay for these benefits, the Mangan group recommended that the rate of contribution for class S self-employed persons should be increased by at least 1.5 percentage points, payable on a compulsory basis. The group concluded that "extension on a voluntary basis, through either an "opt in" or "opt out" basis, could lead to the selection of bad risks and would undermine the social solidarity and contributory principles that underline the social insurance system". While I agree with its rationale as to whiy it should be compulsory, a percentage point increase of 1.5 would be too much, especially if we were to attempt to do it in one budget. In her report Ms Mangan suggested it be phased in over a period.
My Department is examining the cost of financing an extension of benefits, as well as how to phase them in and put in place the practical and administrative arrangements that would be required. The examination includes a survey of a random sample of self-employed persons who rely on class S social insurance benefits. The survey will be carried out by my Department to obtain the views of self-employed persons on which benefits they would want first and the extent to which they would be willing to pay more for them. The results of the survey will help to inform and shape the development of future social insurance policy for the self-employed. Therefore, I encourage any self-employed individual who is invited to take part in the survey to do so.
The cost of extending certain short-term social insurance benefits was considered in the actuarial review of the social insurance fund as at 31 December 2010. Overall, the report found that social insurance benefits offered excellent value for money for those at the lower end of income distribution, those with shorter contribution histories and the self-employed. Regarding the self-employed specifically, the report found that the effective annual rate of contribution required to provide the full-rate State contributory pension was approximately 15% of national average earnings. This compares favourably with the rate of 4 at which the self-employed currently pay. An incremental increase of 1% in contribution rates would be required if jobseeker's benefit, in addition to the core State pension, was to be provided. The average contribution rate required for payment of the core State contributory pension, plus invalidity pension, was estimated to be in the region of 2%.
The programme for Government's commitments on income tax and PRSI are a clear signal of the Government's determination to cultivate a positive and productive entrepreneurial environment. The extension of social insurance entitlements is a fundamental cornerstone of this. I look forward to providing political leadership on this issue. I welcome the motion and the Seanad's support and interest in it.
I will not delay everyone. This has been a great debate and I thank everyone who contributed to it. I also thank the Minister and I am delighted to hear about what he is doing behind the scenes, which follows on from what Deputy Joan Burton was doing. Senator Martin Conway stated: "Well said." We now have a Minister who is in the real world as regards social protection for the self-employed.
The main issue has always been opting in and opting out. It must be mandatory because it cannot be voluntary. When the Irish Small and Medium Enterprises Association, ISME, presented to the social protection committee previously, Mr. Mark Fielding had conducted a survey of his members, of whom more than 70% were in favour of a new stamp for the self-employed, but the split on whether is should be made voluntary or mandatory was 60:40. We have a bit to do to bring people around to it being mandatory, but it is the only way it would work. I mean no one any disrespect, but when various businesses were allowed to opt out of everything during the Celtic tiger, it was catastrophic. When the crash came, people were not even registered for social welfare payments. They did not exist for the State because they had opted out of certain schemes and of paying taxes and PRSI. It must, therefore, be mandatory and we will never have a better chance to start than now. We are at such a low base in people returning to work. We could build the pot in order that, if there is another crash, we will have something in place for the self-employed.
I agree with Senator Kevin Humphreys on the bogus self-employed. We need legislation in this regard. According to an article I read, €20 million per year was going by the wayside due to unscrupulous employers making people self-employed.I saw the same thing happen in my town of Trim where a lot of people got jobs as couriers and were made self-employed. Unfortunately, when the crash came and they lost their jobs their families were entitled to nothing. These people should have been employed by the company. Employers used this method to escape paying contributions. The same is happening all over the country and, therefore, we must bring in legislation to tackle the problem.
Definitely, we have to cost everything. I am sure, as I join the Oireachtas Joint Committee on Social Protection again, that we will have a lot of debates on this issue and a lot of these issues will have to be debated. I wish to say to Senator Devine that I never played politics with this issue. I was devastated when I lost my business and, therefore, I have never played politics with this issue. I would like her and her party to take back the claim made that my party played politics in this area because I certainly have not done so. I came in here six years ago and when I started this campaign a lot of the civil servants who I met on the Oireachtas Joint Committee on Social Protection looked at me as if I was an alien from outer space because I was a businessman. I mean no disrespect to Members of the Oireachtas but I believe we do not have enough businesspeople here. I would like more businesspeople to go into politics.
This issue was a hard one for the civil servants to swallow because they were happy with the status quoeven though people were suffering through the crash. I am talking about the people who had created jobs, paid into the Exchequer and helped this country become a great Celtic tiger. However, when these same people needed help when the crash came there was absolutely nothing for them only devastation. I know men who were assessed on machinery they bought during the Celtic tiger, such as machines for laying tarmacadam or laying pavements, that were valued at €100,000. One cannot bring such machinery into a bank or have one's family eat it so they were worthless. It was crazy that such machinery was used in assessments.
I am delighted to be here for this debate. We had a brilliant debate and I thank everybody for expressing their views. There is no perfect fit when it comes to social protection and the self-employed. I remember having a huge debate with Mr. Mark Fielding and other people about this matter. I threw the following question across the room in the Oireachtas. Do we leave it the way it is? Nobody answered me because the answer was we cannot. I am delighted that Deputy Varadkar has been appointed Minister for Social Protection and that he will do something about the matter. I thank him very much and I thank everybody.