Dáil Éireann debate -
Tuesday, 21 Nov 1995

Vol. 458 No. 5

Written Answers. - Reduction in Employers' PRSI.

Ivor Callely

Question:

172 Mr. Callely asked the Minister for Enterprise and Employment his views on the benefits that may accrue from a reduction in employers' PRSI; his views on whether such a move would help maintain existing jobs and create additional employment opportunities; and if he will make a statement on the matter. [17311/95]

Minister for Enterprise and Employment (Mr. R. Bruton)

There have been a number of studies and working groups over the past number of years that have examined the possible impact of employer PRSI reductions on employment.

Generally, there is broad agreement in the available research and among business and industry representatives and commentators that a reduction in employers' PRSI would probably have a positive impact on employment, although it is difficult to quantify the impact. Given that employers' PRSI has a proportionally greater cost impact on lower paid employments, reductions in employers' PRSI are likely to have a proportionally greater beneficial impact on lower paid employments.

In its 1993 report on a strategy for competitiveness, growth and employment, the NESC looked into the issue of PRSI and stated that, viewed as a tax, there were a number of aspects to PRSI which were unsatisfactory and which merited attention in an employment strategy. Broadly speaking the NESC conclusions in regard to employers PRSI contributions could be summarised as follows:

(a) The structure of PRSI means that it is regressive, increasing the cost of low paid labour more than high paid labour. This has, according to the NESC, a distinct disadvantage from an unemployment viewpoint as workers classified as unskilled are over represented on the live register, and, secondly, firms which employ low paid labour generally compete primarily on cost.

(b) The base for PRSI is limited. This implies that it strengthens the incentive to substitute capital for labour, it is a greater burden on firms in labour intensive sectors and by directly increasing the cost of labour it has an adverse impact on competitiveness.

(c) Employers' PRSI is not related to the employers' ability to pay and it may be negatively related. Labour intensive firms tend to be less profitable so their PRSI liability will tend to be a higher proportion of their profits.

The NESC was of the view that a restructuring of PRSI can contribute to improving employment performance and that that employment impact could be maximised if the restructuring was focused on achieving greater reductions at lower income levels. I would agree with the analyses and conclusions outlined above, bearing in mind that the quantitative impact of PRSI reductions is difficult to assess accurately.

The 1990 report of the Interdepartmental working group on PRSI-income tax and the lower paid and the 1993 report of the interdepartmental working group on employers' PRSI both examined the available research data on this issue. While recognising that PRSI reductions would have a favourable employment impact, in quantitative terms both reports found that the available research data tended to be problematic as regards quantifying that employment impact, as it had proved difficult to measure accurately.

I endorse the changes to the PRSI system announced in the 1994 budget whereby a new reduced rate of 9 per cent employers' PRSI would be levied on incomes up to £173.00 per week. In this year's budget the Minister for Finance announced an increase in the income threshold to £231.00 per week, and stated that the increase would assist employers in maintaining or creating employment. I readily supported this change and endorsed that view.

Employment data published by the CSO provide evidence that the change to the employers' PRSI system, together with the Government's other employment policies, are bearing results. The CSO Industrial Employment bulletin for June 1995 (Provisional) reports that employment in all industries was 227,000 in June 1995, an increase of 10,900 on the June figure. Employment in manufacturing industries increased by 11,400 over the same 12 month period.

The 1995 labour force survey preliminary estimates state that the number of persons at work is estimated to have increased by 49,000 by comparison with 1994. Included in these estimates is an increase in industrial employment of 12,000 and an increase in service employment of 39,000.

In summary, therefore, I believe that reductions in charges or taxes on labour will both help to maintain existing employment, particularly in low margin labour intensive sectors of our economy, and provide an incentive for employers to create new employment opportunities.