Joe Walsh
Question:4 Mr. J. Walsh asked the Minister for Social Welfare when the expert working group on the integration of the tax and social welfare system will report. [13930/95]
Ceisteanna—Questions. Oral Answers. - Tax and Social Welfare Systems Integration.
The expert working group on the integration of the tax and social welfare systems was established in July 1993 by the former Minister of State at the Department of Social Welfare. The terms of reference of the group are:
To identify the problems arising from the interaction of the tax and social welfare systems and to identify the steps necessary to achieve greater co-ordination/integration of the two systems, with particular attention to the impact on people's incomes, and to the tax code, social welfare system, budgetary and administrative implications.
The group was asked to prepare an interim report on measures which could be undertaken in the 1994 budget to reduce poverty traps and increase incentives to work and it presented this report in late 1993. In this interim report, the working group made two specific recommendations for the 1994 budget. These were the easing of the means test for lone parent's allowance to make it more attractive for lone parents to take up work, and abolition of the arrangement whereby employers of medical card holders had to pay the health contribution and employment and training levy on behalf of these employees. Both of these issues were addressed in the 1994 budget and the necessary legislation was included in the 1994 Social Welfare Act.
The group is now preparing its final report and seeking to complete it by the end of the year.
Without pre-empting the findings of the report, from briefings he has had within his Department will the Minister identify the main problem areas which inhibit the early integration of tax and social welfare systems?
The areas being examined in the final report include basic income in a fully integrated system. Under such a scheme social welfare payments and tax allowances would be abolished and replaced with a payment to everyone, regardless of labour force status, other income and family circumstances. The problem with such a scheme is that if basic income is high enough to replace social welfare payments, very high tax levels are needed to finance it. However, some variants, such as a partial basic income, require lower tax rates. The group is examining the feasibility of such options.
On child income support, one factor which contributes to poverty and unemployment traps is that social welfare payments include child dependant additions. The group has been considering the question of shifting some of the support for children from CDAs towards child benefit. A related issue is the commitment in the Government's programme, A Government of Renewal, to introduce a new child benefit supplement payable to people on low and middle incomes to replace CDAs and FIS. The group has been specifically asked to include child benefit supplement in its deliberations.
The other issue being addressed is the unit of assessment. Even if there will not be a major change in the system, such as towards a basic income scheme, a coordinated approach to the unit of assessment for the tax and social welfare schemes is worth examining with a view to removing some of the current anomalies in relation to, for instance, cohabiting couples.
On the question of financing which the group is also examining, currently there are four direct charges on employee income — income tax, social insurance, the health contribution and the employment and training levy. Each has a different basis, exemptions, ceilings, rates and so on. This leads to a complex overall structure. The implications of amalgamating some of these charges are being considered. The group is also examining ways of making the overall system more conducive to employment creation.
One of the main objectives of integration is to reduce the number of poverty and unemployment traps. The group is examining some of the ways these can be eliminated within the existing systems, for example, by a more gradual withdrawal of the medical card.
In the context of integration of the tax and social welfare systems, will the Minister confirm it is his publicly stated view that child income support should be subject to income tax?
The Deputy is wrong. I can only assume he is basing his information on incorrect press reports. If he examines the record of this House, he will find that I have said repeatedly that I do not support the taxation of child benefit.
During the debate on the Social Welfare Bill, 1995, the Minister stated: "I am confirming my point that as a matter of principle all income, regardless of its source, should be liable to tax". That is not taken from newspaper reports but from the record of the House. The Minister has been caught bluffing once more.
I am sorry, Deputy, but it is not permissible to quote at Question Time, as Members should know.
As the Minister is bluffing and misleading the House, I have to do something.
The Deputy will not get far in Opposition by misquoting out of context.
The Minister is misleading the House.
Questions have been asked. The Deputy should listen to the reply.
I have made it clear repeatedly in this House that I do not favour the taxation of child benefit——
The Minister is backing down.
——unlike the Deputy and his party who actually proposed it should be taxed.
The Minister has again been caught bluffing.
If the Deputy wishes, the next time I take Question Time I will quote chapter and verse.
Order, please. Constant interruptions of the kind in which Deputy Walsh is engaging are out of order in every sense of the word.
The Deputy is being unruly.
It is very hard to listen to hypocrisy.
The Deputy asked some questions. As a matter of courtesy, he should listen to the Minister's reply in quietude.
The Deputy should at least listen to the answers I am prepared to give.
I will tell him what I will do — I will bring Question Time to finality if I do not get order fast.
For the amount of information we have been given, you might as well.
Does the Minister agree there is an obvious need to integrate the tax and social welfare systems because the FIS and tax exemptions overlap and as a consequence those in receipt of FIS pay tax at the marginal rate of 40 per cent? If the income of a person caught in this trap rises by £10 their net take home pay will fall by 50p when family income supplement is taken into account. Does the Minister intend to do anything about this in the forthcoming budget?
As I indicated earlier to the Deputy's colleague, I do not intend to inform the House what I propose to do in the next budget. However, we intend to move to eliminate the anomalies in the tax and social welfare systems. An expert group has been examining this matter for the best part of two years to identify how this can be done. Because of the poverty trap to which the Deputy referred, an increase in earned income can result in a net loss in income for the person concerned. This is not an easy thing to do. That is the reason it is taking the expert group so long to examine all the issues. The tax and social welfare systems are extremely complex. At this stage it would be best to await the report of the expert group which can be debated in full in this House to see what is feasible and to agree a timetable for implementation.
There is a saying, "mair a chapaill agus gheobhair féar." Does the Minister agree that we do not need an expert group to eliminate that anomaly? All one has to do is ensure that the tax exemption limit is higher than the FIS limit. It is as simple as that. Does the Minister agree that this is one element of the overlap which is so glaringly obvious and simple to remedy that he could give an undertaking now that no one in receipt of FIS in 1996 would be liable for taxation? It is a simple question of adjusting the tax exemption rates.
I do not intend to give the Deputy a commitment on that matter off the top of my head. I examined this issue in the past and it is not as simple as the Deputy suggests.
That element is as simple as that.
Let us hear the reply.
It is related to the amount of FIS paid, the tax bands and exemption rates. There are many interrelated issues. One of the problems is we have attempted to amend the social welfare code and the tax code independently of each other and in a piecemeal fashion without any plan of the direction in which they should be developed. The group of experts will attempt to bring forward proposals to Government which will enable it address these anomalies in a planned and coherent way rather than in an ad hoc and piecemeal fashion.
The Deputy may only ask a brief and relevant question. We have spent overlong on priority questions.
Does the Minister agree that when he was in Opposition he disliked answers which referred to long, complicated plans for the future and what he liked were simple, effective remedies? Does he agree that a statement of principle by him and by the Minister for Finance to the effect that the tax exemption level will be higher than the basic rates of social welfare would ensure one could not be caught in the trap of paying taxation while in receipt of social welfare?
The Deputy has made his point adequately.
I have not changed my mind since coming to Government — I still like straightforward solutions to problems. This is not a straightforward problem which can be addressed in a simple way. There is an expert group examining the question of integrating the taxation and social welfare codes and we expect it to report by the end of the year. The report will be presented to the House and we will see what it is feasible to implement. I do not intend to make budgetary policy on the hoof in response to Deputies' questions.
Regarding the Minister's reply to Deputy Walsh about not taxing child benefit, will he clarify what he meant by his statement that, in principle, he agrees all income, irrespective of its source, should be taxable? There is a conflict between what the Minister is on record as saying in his contribution on the Social Welfare Bill, 1995 and what he is saying today.
I am sure the Ceann Comhairle would prevent the Deputy reading the full text of what I said in 1994 and 1995 which is consistent with what I said now. I said that, in principle, all income which is above a certain threshold should be subject to tax in an equitable way. That is a position in principle in an ideal world but we do not live in an ideal world nor do we have an ideal taxation or social welfare system. I do not agree with taxing child benefit because in the vast majority of cases we would take money out of the pockets of women working in the home whose only independent income is child benefit. It is the one social welfare payment that goes almost exclusively towards the rearing and maintenance of children. It cannot be shown that any other social welfare benefit goes directly to the intended target. For those reasons I disagree with the taxation of child benefit despite the fact that, in principle, in an ideal world profits from land rezoning and so on should be taxed. I will continue to argue for an equitable tax system but until we have one I will resist, tooth and nail, any attempt to tax child benefit.
The Minister did not live in the real world when he was in Opposition.
The Deputy's party was proposing it.
The rainbow is the real world. The Minister is learning to conform.