Dáil Éireann debate -
Thursday, 21 Nov 1991

Vol. 413 No. 3

Ceisteanna — Questions. Oral Answers. - PRSI Contributions.

Emmet Stagg

Question:

3 Mr. Stagg asked the Minister for Social Welfare his views on whether the situation whereby people are levied PRSI contributions on their income even though this income is below the income tax threshold is fair and equitable; if his attention has been drawn to the fact that many low income taxpayers pay a higher PRSI levy than they do income tax and that the present PRSI exemption on low incomes constitutes a poverty trap; his views on whether PRSI contributions should be levied on the principle of ability to pay; if he will outline the steps he proposes to take to reform the PRSI contributions system.

Mr. Daly

Social insurance contributions are already related to ability to pay. They are charged at a rate of 5.5 per cent of income, up to the ceiling. This means that high earners pay higher contributions than the low-paid. Furthermore, those earning £60 per week or less do not have to pay contributions; this eases the impact of contributions on the low-paid although it creates a small poverty trap at the £60 per week threshold.

The review of the Programme for Government contains a commitment to restructuring employee PRSI, with the health and employment levies, on an Exchequer neutral basis, so as to make it more progressive and to consolidate it into a single main rate close to 6 per cent. The exact steps to be taken in this regard will be considered in the context of the budget.

Mr. Stagg

I join with other Members in welcoming the Minister to his new portfolio and wish him well in the difficult task ahead of him. Would the Minister not agree that it is rather outrageous and ludicrous that a person earning £60 per week is exempt from paying PRSI, while a person in receipt of £61 per week pays £3.10, so that the person getting an increase of £1 is losing £2.10; hence the poverty trap? Would the Minister not agree that the exemption should be on the first £60 of all earners and then everything should be taxed after that?

Mr. Daly

I see what the Deputy is getting at. There is a difficulty in that area. When one draws any limit there will always be a gap. If the remit was £80 there would be somebody on £79 and on £81. We are examining this and it will be looked at in the context of the Programme for Government and in the overall budgetary situation. I will take the Deputy's views into consideration.

Mr. Stagg

Is the Minister aware that 25 per cent of households below the poverty line are paying PRSI and income tax, and that we also have the ludicrous situation where some people who are not liable to income tax are not paying PRSI, that this creates a poverty trap that the Minister and others are trying to eliminate? At what stage is the review and when does the Minister expect to implement the decisions of the review of the PRSI system?

Mr. Daly

The review was a commitment given in the Programme for Government. This whole area will be closely examined. It has already been the subject of some discussion at official level between my Department and the Department of Finance. A comparison is often made between PRSI and income tax but there is a difference because people who pay PRSI have an automatic entitlement to certain benefits and pensions. I appreciate the point made by the Deputy and it is something that we have already identified as being an area that needs some attention. In the context of the budget and the review we will endeavour to see what progress we can make.