Dáil Éireann debate -
Thursday, 5 Nov 1992

Vol. 424 No. 10

Ceisteanna — Questions. Written Answers. - Taxation of Statutory Benefits.

Tomás MacGiolla

Question:

54 Tomás Mac Giolla asked the Minister for Finance if he intends to proceed with his stated intention to consider the taxation of disability benefit, occupational injury benefit and pay-related benefit; if he considers that such a move would, in fact, constitute a reduction in these benefits; and if he will make a statement on the matter.

Minister for Finance (Mr. B. Ahern)

Section 15 of the Finance Act, 1992, provides inter alia for disability benefit (including injury benefit comprised in occupational injuries benefit) and any associated pay-related benefit, to be treated as income for tax purposes. It also provides for the making of a Commencement Order or Orders to bring such treatment into effect. The necessary arrangements have not yet been finalised, but I would expect that an announcement would be made about the matter in the fairly near future. There will of course be no change in the present tax status of these benefits until the commencement date for their treatment as income for tax purposes. I would also point out that Section 15 of the Finance Act, 1992, provides that a positive motion of the Dáil, approving of a draft Commencement Order, will be required before such an Order is actually made.

I do not accept the Deputy's contention that treating these benefits as income for tax purposes would in fact constitute a reduction in them. The extent, if any, to which taxation will arise in a given case will essentially depend on the amount of other income the recipient has in the same tax year. In addition, in very many cases taxation will in practice simply take the form of reducing or stoping refunds of tax being made to benefit claimants.

I would also point out that treating these benefits as income for tax purposes has been recommended by many authoritative bodies over the years, including the Commission on Taxation, the National Economic and Social Council and, most recently, the Industrial Policy Review Group. It must also be seen in the context of the Government's policy of broadening the tax base (that is, ensuring that income generally, however received, is treated as income for tax purposes) in order to reduce marginal tax rates and make other income tax improvements. Much progress has been made along these lines over recent years, including increases in the exemption limits and introduction of, and increases in, the child additions to them; reduction of the top tax rate to 48 per cent and the standard rate to 27 per cent; and extension of the standard band by nearly 60 per cent since 1987. The Government's objective is for further reform along these lines.

Finally, the Deputy may wish to note that ESRI paper No. 154, dated November 1991, entitledIncome Tax and Welfare Reforms: Microsimulation Modelling and Analysis, found that the vast bulk of the benefit from non-taxation of short term Social Welfare benefits “goes to the top half of the equivalent income distribution” and that “less than 10 per cent of those affected are in the bottom three deciles...”. The ESRI study was based on the 1987 income tax structure, that is, before the substantial increases in the exemption limits and the introduction of, and increases in, the child addition to them which have been implemented in recent years in order to reduce the tax burden on low-paid taxpayers, especially those with family responsibilities.