Written Answers. - Income Tax Allowances.
Michael Bell
Question:
26
Mr. Bell
asked the
Minister for Finance
the total revenue yield in a full year from converting basic personal allowances into tax credits at the standard income rate of 29 per cent; the net benefit to standard rate taxpayers if basic personal allowances are converted into tax credits on a revenue neutral basis to the Exchequer.
Michael Ferris
Question:
37
Mr. Ferris
asked the
Minister for Finance
the estimated increase in the mortgage interest allowance which could be financed through de-application of revenue savings from the conversion of mortgage interest allowances into mortgage interest tax credits at the standard income tax rate of 29 per cent on a revenue neutral basis to the Exchequer.
Toddy O'Sullivan
Question:
50
Mr. T. O'Sullivan
asked the
Minister for Finance
the estimated value of the current PAYE allowance if converted into a tax credit at the standard rate of 29 per cent; the gain/loss to taxpayers (a) on the standard rate of tax (b) the 48 per cent rate and (c) the 52 per cent rate; and if he will make a statement on the matter.
Séamus Pattison
Question:
91
Mr. Pattison
asked the
Minister for Finance
the estimated full year revenue yield from the conversion of income tax relief on VHI premia to a tax credit at the standard rate of 29 per cent.
I propose to take Questions Nos. 26, 37, 50 and 91 together. Assuming the enactment of this year's budget proposals the full year effects, estimated by reference to the income tax year 1991-92, which would arise from the changes referred to in the questions are as follows:
(i) Conversion of basic personal allowances to tax credits
The revenue yield which would arise from a conversion of the basic personal allowances to tax credits at the standard rate of income tax would be of the order of £264 million. If all of that yield were used to increase the level of tax credits, the net benefit, in terms of tax saved, to those taxpayers still paying tax at the standard rate after the conversion would be of the order of £243 for a single taxpayer and £486 for a married taxpayer. Taxpayers paying tax at 48 per cent would suffer a net loss of £156 if single and £312 if married. Those paying tax at 52 per cent would lose £240 and £480 respectively. It should be noted that, despite the increase in the personal allowances — given in the form of tax credits — the percentage of taxpayers liable at the higher tax rates would increase to 58 per cent.
(ii) Conversion of mortgage interest relief to a tax credit
If mortgage interest relief was to be given by way of tax credits at the standard rate of income tax, the consequential yield to the Exchequer could provide, on a revenue neutral basis, for an increase of about £90 for a single taxpayer and £180 for a married couple on the current ceilings for mortgage interest claimable and, in addition, for the restoration of the amount of interest qualifying for relief to 100 per cent of the new ceilings. Those mortgage holders still paying tax at the standard rate after the conversion would have a net gain; mortgage holders paying tax at the higher rates would suffer a net loss. It should be noted that some 40,000 mortgage holders currently paying tax at the standard rate would, as a result of the change to a credit, be moved into a higher rate.
(iii) Conversion of PAYE allowance to a tax credit:
If the current PAYE allowance of £800 was converted to a tax credit at the proposed standard rate of 29 per cent, the appropriate credit would be £232. This change would cause neither a gain nor a loss to individuals still paying tax at the standard rate despite the loss of the allowance. For individuals whose marginal tax rate was 48 per cent there would be an increase in tax of £152 and the corresponding tax increase for individuals taxed at the proposed top rate of 52 per cent would be £184. Some 45,000 PAYE taxpayers who would otherwise be paying tax at the standard rate would be moved into a higher rate.
(iv) Conversion of medical insurance relief to a tax credit:
The conversion of medical insurance relief to a tax credit at the standard rate of income tax would give rise to a revenue yield of £16 million.
It is important that, in looking at possible options in the area of taxation, there should be no confusion between the underlying policy considerations, such as equity, progressivity or efficiency, and the essentially administrative issue of how best to realise these in practical terms. Tax credits simply represent an alternative means of pursuing goals which could equally be advanced within the framework of the present allowance system. The choice between a credits system and an allowance system should, therefore, rest on considerations of simplicity from the standpoint of taxpayers and the administration.
As regards the question of substituting tax credits for basic personal allowances, it should be made clear that this would significantly increase the progressivity of the tax system in the absence of other changes. It is already quite progressive. For example, a single PAYE taxpayer with only standard allowances will, in 1991-92 be liable for a tax rate of 48 per cent on income in excess of £9,886, or about £190 per week. Moreover, some 37 per cent of taxpayers currently pay tax at a rate above the standard rate. As the figures given above show, one effect of replacing personal allowances by credits would be to bring about a situation where a far greater proportion of taxpayers would be liable at the higher rates. I do not believe that this would be generally seen as an improvement in the tax system. It would certainly run counter to the view that economic and employment objectives are likely to be best served by keeping marginal tax rates as low as possible.
Brian O'Shea
Question:
27
Mr. O'Shea
asked the
Minister for Finance
the estimated current real value of (a) personal allowances and (b) PAYE allowances taking 1988 as a base year; and the nominal value which both would be in the 1991-92 income tax year if their real value was equivalent to their 1988 value.
On 1 January 1988, the single, married and PAYE allowances stood at £2,000, £4,000 and £700 respectively. The current real value of these figures would be £1,822, £3,644 and £638 respectively. Their nominal value in the 1991-92 tax year if their real value were equivalent to their 1988 value is estimated at £2,264, £4,528 and £792 respectively.
I would point out that maintaining the value of these allowances in real terms is not the only way of alleviating the income tax burden. Since 1988, considerable progress has been made in relation to income tax. The general exemption limits, which in January 1988 stood at £2,650 for a single person and £5,300 for a married couple, will in the 1991-92 tax year be £3,400 for a single person and £6,800 for a married couple. In 1989 I introduced a child addition of £200 per child in conjunction with these limits; I increased this to £300 per child in the 1990 budget and this year to £500 in respect of third and subsequent children. The personal allowance itself has been increased twice in recent years, in 1988 and this year, on both occasions by £50 for a single person and £100 for a married couple. The PAYE allowance was increased by £100 in 1988. In addition, taking this year's budget into account, the standard rate band has been extended by £2,000 for a single person and £4,000 for a married couple, while the top rate of tax has been reduced from 58 per cent to 52 per cent and the standard rate from 35 per cent to 29 per cent. These reliefs benefit all taxpayers and represent substantial progress on income tax over the years in question.
