Pearse Doherty (Donegal South West, Sinn Fein)
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83. To ask the Minister for Finance the cost or saving to the Exchequer that could be made if the use of tax credits was abolished and the system instead returned to tax free allowance up to a cut-off point, followed by the standard and marginal tax rates. [30923/13]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the estimated full year cost to the Exchequer, estimated by reference to 2013 incomes, of converting the main personal and employee tax credits, including the additional credits available to lone parents and widowed persons, back to tax free allowances would be of the order of €1.7 billion.

A tax credit system is a fairer and more equitable tax system. This is because tax credits have the same value to both lower and higher income earners, whereas tax allowances are more beneficial to higher income earners, as they reduce the amount of income which is subject to the higher rate of tax. In addition, one of the perceived advantages of moving from tax free allowances to tax credits was that it was significantly less costly for the Exchequer to maintain a tax free threshold for low income earners in a tax credit environment.

A move back to tax free allowances would require a significant reduction to be made to those allowances to achieve revenue neutrality and consequently that would have the effect of reducing the tax free thresholds to lower effective levels than at present.

The cost figure is an estimate from the Revenue tax-forecasting model using latest actual data for the year 2010, adjusted as necessary for income and employment trends in the interim. It is, therefore, provisional and subject to revision.