Vol. 448 No. 1
29 Mr. Clohessy asked the Minister for Finance if his attention has been drawn to the fact that a person (details supplied) in County Limerick who received a modest increase in pension ended up substantially worse off; and if he will make a statement on the matter. [1566/95]
I have had inquiries made of the Revenue Commissioners in relation to this tax-payer's case. I have been advised, in regard to the taxation element of the question, that as the income of the taxpayer is likely to exceed the income exemption limit of £8,200 in 1994-95 he is liable to tax. However, as his income is only slightly above the exemption limit he is entitled to be assessed to tax under the Marginal Relief system of taxation. This means that the first £8,200 of his income is exempt from tax and any income in excess of that amount is taxed at 40 per cent. Consequently, the increase of £3.39 in his weekly pension is taxed at 40 per cent resulting in an additional income tax liability of £1.36 per week. I would point out that as the taxpayer is being assessed to tax under the Marginal Relief system, rather than the Standard Income Tax system as applies to the generality of taxpayers, his tax liability for the year is reduced by approximately £440.
As the Deputy is aware, persons who earn £173 or less per week were exempted from paying the health and employment and training levies, amounting to 2.25 per cent in the 1994 budget. However, as the increase in this taxpayer's pension brought his weekly income over the £173 threshold, his income became liable for the levies which, in his case, amounted to £3.90 per week. It was this element which effectively offset the increase in pension.
Due to budgetary constraints, the exemption from the levies was targeted specifically towards people on low pay. This was achieved by setting the threshold at £173 per week. I am aware of the difficulties or anomalies that can arise from introducing such a threshold. However, introducing a marginal relief system at the present threshold would introduce an unacceptable level of additional complexity and compliance costs into the employee's PRSI system. The suggestion is sometimes made that the levies should apply only to income over the threshold. Such a proposal would be very costly to implement and would not focus the benefit towards those on lower incomes as the existing measure does.
