It is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. In line with this principle the majority of social welfare payments, including social welfare pensions are, therefore, reckonable as income for tax purposes. This means that the social welfare pension is combined with any other income a person might have for tax purposes.
The extent, if any, to which taxation will arise in a given case will essentially depend on the level of other income that a recipient or the recipient's spouse has in the same tax year. If there is no other income in addition to the social welfare payment, the existing exemption limits and allowances can be expected to ensure that there is no tax to be paid on the social welfare income itself.
I draw to the Deputy's attention the fact that prior to the introduction of the new system of PRSI in April 1979, part of the former flat-rate contributions were tax relieved. On the introduction of the new system of PRSI, the tax relief was withdrawn in the 1979 Finance Act. However, in setting the new PRSI rate account was taken of the fact that income tax relief would not be available.
Those aged 65 and over are treated more favourably under the Irish income tax code than the generality of taxpayers. The last three budgets have implemented substantial improvements in the tax treatment of the elderly, with the exemption limits for those aged 65 and over being increased to £7,500 single/£15,000 married. The age exemption limits compare favourably with the general exemption limits of £4,100 single/£8,200 married. The large increases in income exemption limits for the elderly announced in the 1999 and 2000 budgets will have removed around 25,000 elderly persons from the tax net.