Dáil Éireann debate -
Thursday, 6 May 1993

Vol. 430 No. 4

Written Answers. - Poverty Traps.

Pat Cox

Question:

96 Mr. Cox asked the Minister for Finance if he will update the data on poverty traps post-budget 1993 in line with the format set out originally in a NESC report of some years ago and which has been regularly updated in recent years.

Minister for Finance (Mr. B. Ahern):

The Poverty Trap: Man, Wife, Four Children, 1993-94, £ Per Annum

					Plus	Less
Gross Pay	Tax	PRSI	Levies	Net Pay	FIS	Medi-Card Value	Net Income	LA Rent	Travel To Work Costs	Net Disposable Income
£	£	£	£	£	£	£	£	£	£	£
8,000	—	440	—	7,560	2,532	499	10,591	630	590	9,371
9,000	—	495	—	8,505	1,932	499	10,936	1,011	590	9,335
10,000	480	550	325	8,645	1,332	—	9,977	1,028	590	8,359
11,000	960	605	357	9,078	732	—	9,810	1,082	590	8,138
12,000	1,440	660	390	9,510	260	—	9,770	1,137	590	8,043
13,000	1,920	715	422	9,943	—	—	9,943	1,191	590	8,162
14,000	2,312	770	455	10,463	—	—	10,463	1,256	590	8,617
15,000	2,582	825	487	11,103	—	—	11,103	1,332	590	9,181

Notes on Table:

1. The main components of the Income-Poverty Trap — the apparent decline in net income as gross income increases — are the withdrawal rate of Family Income Supplement (60 per cent) and the operation of marginal relief for income tax (involving 48 per cent tax rate). Both of the measures are designed to achieve desirable objectives in the area of incentives for unemployed persons to take up paid employment and this is the current policy priority. However, for persons in employment, their operation can give rise to the possibility of an increase in their income being more than offset.

2. It is essential in interpreting this table that the mechanism for reviewing Family Income Supplement (FIS) is understood. FIS is renewable on a 12 monthly basis. Once awarded it willnot be reduced - withdrawn until the end of the period regardless of any upward movements in pay. Therefore, gross income from employment can increase significantly during the course of a year while any adjustment of FIS will not occur until after the end of the year. Thus, the FIS withdrawal, represented above as coinciding with gross pay increases does not generally occur.

3. The numbers of people potentially effected by this trap are small. In so far as FIS and marginal relief income tax are the main elements of the trap, the number of people affected by the trap is essentially a function of the numbers who both receive FIS and pay tax. The numbers of people both paying tax and receiving FIS is of the order of 1,500 to 2,000. The OECD has also concluded that this trap potentially "applied only to a very small proportion of the employee workforce (0.75 per cent)". On the basis of the OECD assessment this would suggest a maximum number of 5,000 to 6,000 personspotentially affected.

4. It should be noted that statistics of income distribution published by the Revenue Commissioners are not a valid measure of the number affected because (a) the data are not desegregated by family size; (b) they include categories such as widows, widowers, single people etc. which are not relevant to the table; (c) the figures are expressed on an annual basis and include people entering employment late in a year, working for short periods or leaving employment early in the year.