Tommy Broughan (Dublin North East, Independent)
Link to this: Individually | In context | Oireachtas source

163. To ask the Minister for Finance his proposals to address the problem of the so-called step effect in the PRSI system affecting lower income workers whereby persons earning gross pay of between €18,305 and €19,366 per annum are paying a much higher effective tax rate than those earning below €18,304 per annum; and the potential cost of redressing the unfairness created by this element of the PRSI system. [27303/14]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I assume the Deputy is referring to the recent TASC report regarding 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. However it should be noted that the cohort identified being affected by this step effect do not ordinarily pay income tax on the first €16,500 of their income because of the PAYE and personal tax credits, and in some cases, depending on eligibility for additional credits, they may be exempt from the income tax charge entirely.

The potential cost of addressing this step effect must be viewed in the context of the constrained fiscal environment in which we find ourselves.  Under the terms of the Stability and Growth Pact, until Ireland has reached its objective of a balanced budget in structural terms, we may not introduce discretionary revenue reductions unless they are matched by other revenue increases or expenditure reductions. This means that Government must consider carefully any tax changes as any reductions will have to be offset elsewhere.