Written answers

Thursday, 12 June 2014

Department of Finance

Budget Consultation Process

Photo of Finian McGrathFinian McGrath (Dublin North Central, Independent)
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75. To ask the Minister for Finance if he will consider the issues raised by Think tank for Action on Social Change, TASC, (details supplied); if he will confirm if the information provided by TASC is accurate; and if he will make a statement on the matter. [25164/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The report from TASC, to which the Deputy refers has been brought to the attention of my officials, who met with representatives from TASC recently. The contents of the report will be considered as part of deliberations for Budget 2015.

To address the specific points raised in the details supplied by the Deputy;-

1. The figures quoted by TASC regarding the achievement of a net increase in pay for employees at certain income levels relates to the step effect in the PRSI system which brings all income into charge once the relevant threshold is reached. While such an effect is never ideal, it is necessary to achieve the desired yield, which in itself contributes to keeping workers on incomes lower than the threshold to remain outside the charge to employee PRSI entirely.

2. A single person on income of €40,000, while subject to a marginal rate of income tax of 41%, may pay an effective rate of income tax of 10%, when tax credits, bands and reliefs are taken into account. Effective tax rates are calculated by dividing the amount of income tax paid (excluding PRSI and USC) by the total income of an individual, and would usually take account of any tax reliefs, incentives or deductions claimed. This differs from the marginal tax rate paid on the last euro of income. The availability of tax credits, standard rate bands and other tax reliefs means that the effective rate of income tax paid by an individual will always be lower than the marginal rate payable. For example, tax credits for single employees ensure that the first €16,500 of income is not liable to income tax at all.

3. I am informed by the Revenue Commissioners that they estimate that just over 17% of income earners were liable to Income Tax at the 41% rate in 2013. These figures are provisional. It is incorrect to state that the remainder of taxpayers would not benefit from rate or band changes. A reduction in the lower (20%) tax rate would benefit some of these taxpayers, while an increase in the standard rate band could ensure that those workers that are on the brink of paying the higher rate of income tax currently, could benefit from a pay increase, without becoming subject to the higher rate of income tax going forward.

4. I can confirm to the Deputy that Ireland does indeed have the lowest tax wedge of all EU members, for those on average wages, as calculated by the OECD. The Tax Wedge is defined as the sum of personal income tax plus employee and employer social security contributions together with any payroll taxes less cash transfers, expressed as a percentage of labour costs. It is the difference between what an employer has to pay in terms of gross wages plus taxes to hire an employee and the net revenue received by that employee after deduction of all taxes on their wages. These figures also take into account social insurance payments made by employers. A competitive tax wedge is considered vital in encouraging employment growth across all income categories and to incentivise individuals to remain in or return to the labour market.


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