Dáil Éireann debate -
Wednesday, 25 Jan 1995

Vol. 448 No. 1

Written Answers. - North-South Trade Links.

Seamus Kirk

Question:

21 Mr. Kirk asked the Minister for Finance his views of the results of a recent small firms association analysis of cost competitiveness in the Republic of Ireland and Northern Ireland; and if he will make a statement on the matter. [1453/95]

Desmond J. O'Malley

Question:

26 Mr. O'Malley asked the Minister for Finance the way in which the Irish and United Kingdom tax and social insurance schemes affect employment north and south of the Border; the sums that are payable by employer and employee by way of tax and social insurance in each jurisdiction in the case of a single worker with standard allowances on incomes of IR£10,000, IR£12,000, IR£14,000 and IR£16,000; and whether he will make a statement on the implication for employment policy. [1572/95]

Rory O'Hanlon

Question:

56 Dr. O'Hanlon asked the Minister for Finance if his attention has been drawn to the concern of the Small Firms Association at the uncompetitive business environment between North and South; the steps, if any, he intends to take to redress the imbalance; and if he will make a statement on the matter. [1612/95]

Minister for Finance (Mr. Quinn)

I propose to take Questions Nos. 21, 26 and 56 together.

I share the view of the Small Firms Association that the redevelopment of North-South trade links affords a tremendous opportunity for small firms. I can assure the Deputy that I am acutely aware of the problems and difficulties which small businesses face and that I will be taking account of those problems in framing the forthcoming budget.

Although there has been very substantial progress on tax reform in recent years, I and my colleagues are very aware that a lot more needs to be done. Accordingly, our programme: A Government of Renewal contains a commitment to accelerate the process inter alia by:

targeting lower paid workers and young new job entrants, through a combination of measures aimed at taking them out of the tax net, and the development of a reformed system of PRSI contributions and other measures;

widening the standard rate tax band, with the aim of ensuring that only those on higher incomes would pay tax above the standard rate; and,

increasing personal allowances by significantly more than the rate of inflation.

Budgetary policy on tax and PRSI will target resources at the promotion of sustainable employment.

While a differential exists between Irish PRSI rates and the UK national insurance contributions paid in Northern Ireland this is but one of a number of factors affecting competitiveness. I should point out, however, that PRSI concessions are costly. An interdepartmental review of employers' PRSI estimated the cost of introducing a tiered rate system similar to that in force in the UK in 1994-95 at £198 million. A simple reduction in the main 12.2 per cent Employers PRSI contribution would cost £77 million for each 1 per cent cut.

The data requested by Deputy O'Malley is as follows. The sums that are payable by employer and employee by way of tax and social insurance in the South and North, in the case of a single worker with standard allowances, are on income of:

	South	North
£	£	£
10,000	3,767	2,986
12,000	4,783	4,150
14,000	6,142	5,054
16,000	7,501	5,958

As the Deputy is well aware, in any comparisons of the tax wedge between the Irish and the UK tax systems, the single person is among the groups that show the largest differences. However, if one takes the example of a married couple, with one earner, which are quite a significant category in Ireland, then the divergence between the two tax systems is considerably reduced and can in the case of large families on low incomes be even slightly in our favour.

As regards the corporation tax issue, as the Deputy is aware the Small Business Task Force recommended a reduced rate of corporation tax for small businesses with profits of up to £80,000 and a turnover of up to £3 million. This issue has been raised in many pre-budget submissions and at pre-Budget meetings which I and my officials have had with various representative bodies last week. I and the Government will be giving due weight to those proposals in framing the Budget.

I expect that the emergence of peace in Northern Ireland will result in much more favourable conditions for enterprise there and make it a more attractive location for investors. I view this prospect with optimism: the present strength of the Irish economy and the actions which this Government will take in the coming years will enable us to cope successfully with the challenges of the future.

The figures for output, exports and employment growth for the Republic show quite clearly that we are more than holding our own in comparison with other EU member states and with the wider world: in other words the Irish economy is competing effectively on international markets.

For more positive reasons, we should welcome a healthy and expanding Northern Ireland economy. The resulting growth will not only be of benefit to those living and working there but will also provide a bigger market for businesses on this side of the Border so that all Ireland will be better off as a result.