Richard Bruton (Dublin North Central, Fine Gael)
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Question 210: To ask the Tánaiste and Minister for Health and Children the cost of the concession exempting persons with income under €400 from paying the health levy; the cost of exempting from health levy the first €127 of income, the first €150 of income and the first €175 of income respectively; if her attention has been drawn to the fact that the present fixed exemption limit can result in very high marginal rates of levy on persons whose income goes over the threshold; and if she will make a statement on the matter. [33399/05]

Mary Harney (Dublin Mid West, Progressive Democrats)
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I am informed by the Revenue Commissioners that the full year cost to the Exchequer, based on projected 2006 incomes, of maintaining the current exemption threshold for the health contribution levy at €20,800 per annum, that is, the annualised value of its current level of €400 per week, is estimated at €137 million in a full year. If the existing threshold was to remain in place and was supplemented by an allowance equal to the first €127, €150 or €175 of weekly earnings, €6,604, €7,800 or €9,100 in annual terms, the additional full year costs are estimated at about €140 million, €165 million or €193 million respectively.

The current position is that once liability arises, the levy is payable at 2% on a person's entire income, including the portion below the threshold. This has been described as the "step effect" and it can lead to circumstances where an increase in gross pay for a person with an income at the threshold results in a reduction in his-her net take home pay. A €1 increase in annual pay can lead to a net reduction of €8 in net pay per week or about €416 per annum. Where in any tax year, a person's annual income is below the annual threshold, any amounts paid as a result of them having exceeded the weekly threshold may be reclaimed. To abolish the step effect entirely by converting the current levy threshold into an allowance of €20,800 per annum would cost an estimated €442 million in a full year. In such circumstances, only income above the allowance would be liable to the 2% levy.

Since 1999, the value of the levy threshold has increased significantly by over 45%.