Dáil Éireann debate -
Wednesday, 24 May 1995

Vol. 453 No. 4

Written Answers. - Allowances/Reliefs Costings.

Michael McDowell

Question:

50 Mr. M. McDowell asked the Minister for Finance the full cost in 1995 of the following allowances and reliefs to the Exchequer, single personal allowances, married allowance S.138 IT 67, child allowance for widowed parent and others S. 138A IT 67, widowed person's allowances, PAYE allowances S.3 FA. 1980, PRSI allowances S.6. FA 1986, dependent relative allowances S.142 IT 67, medical insurance allowances S.145 IT 67, permanent health benefit schemes S.8. FA 79, employed carer allowance S.3 FA 69, life allowance S.8 FA 74, blind person's allowance S.11 FA 71, medical expenses S12 FA 67, exemption limits S1 FA 80, age exemption S2 FA 80, retirement annuities S 235 IT 67, and rent allowance S142A IT67; and the estimated full year gain to the Exchequer of allowing the allowances mentioned available in 1994 at the standard 27 per cent rate only; whether his Department has evaluated the possibility of substituting tax credits for tax allowances; and if he will make a statement on the matter. [9443/95]

Minister for Finance (Mr. Quinn)

The statistical information requested by the Deputy is set out in the following table.

The gain to the Exchequer from confining the listed reliefs to the standard rate of 27 per cent is estimated to be of the order of £430 million. In arriving at this estimate the exemption limits and associated marginal relief have been estimated at their present levels. This estimate is tentative and is subject to a margin of error.

The estimate of yield does not include any yield from confining medical insurance relief to the standard rate as provision has already been made in the 1994 Finance Act for this change to take effect on a phased basis from 6 April, 1995.

The question of introducing a tax credit system has been considered over the years. In looking at possible options in the area of taxation it is important that there should be no confusion between the underlying policy considerations, such as equity, progressivity or efficiency, and the essentially administrative issue of how best to realise these in practical terms. Tax credits simply represent an alternative means of pursuing goals which could equally be advanced within the framework of the present allowance system. The choice between a credits system and an allowance system therefore should rest on considerations of simplicity from the standpoint of taxpayers and the administration.

As regards the question of substituting tax credits for allowances, it should be recognised that it would significantly increase the progressivity of the tax system in the absence of other changes. The tax system is already quite progressive. Moreover, it would bring about circumstances in which a greater proportion of taxpayers would be liable at the higher rate. I do not believe that this would be generally seen as an improvement in the tax system. It would certainly run counter to the view that economic and employment objectives are likely to be best served by keeping marginal tax rates as low as possible.

Cost to Exchequer of certain income tax allowances and reliefs.

Allowance or Relief	Full Year Cost(Provisional for 1995/96)
	£m
Single(¹)	452.3
Married(¹)	875.8
One Parent Family	18.0
Widowed (including widowed bereavement allowances)(¹)	60.8
PAYE Allowance	215.3
PRSI Allowance	26.8
Dependent Relative	1.0
Medical Insurance	58.6
Permanent Health Benefit	2.5
Person employed to care for incapacitated taxpayer	0.2
Life Assurance	Abolished
Blind Allowance	0.2
Health Expenses	8.1
Exemption limits including general, child addition and aged(²)	93.0
Retirement Annuities (Self-Employed)	27.9
Rent Paid in Private Tenancies(³)	20.3

(¹) The figures show the aggregate cost of (a) the allowances granted to indivduals effectively liable to tax and (b) the allowances which would have been accorded to individuals if the exemption limits did not apply to them.

(²) Includes the cost of marginal relief for taxpayers whose incomes are not greatly in excess of the exemption limits. It excludes the cost of the exemption limits where they do not exceed the level of the allowances indicated at (b) in footnote (1).

(³) Excludes expected additional yield from landlords.