Written Answers. - Staff Recruitment.
Desmond J. O'Malley
Question:
50
Mr. O'Malley
asked the
Minister for Finance
if his attention has been drawn to the fact that many employers are finding it difficult to fill vacant positions in view of high employment taxes and existing welfare levels; and if he will make a statement on the matter.
[3983/97]
I am aware of anecdotal evidence which suggests that employers in certain sectors are having difficulties in filling vacancies. Why this is so is not always clear and several factors have been put forward in explanation. While some blame the interaction of the social welfare and taxation systems which can create a disincentive for certain people, especially those with children, to accept an offer of employment, others offer different explanations. In any event, this Government have acted to alleviate the disincentive effects of the tax and social welfare systems which have arisen over a number of years.
The Government's policy in relation to taxation is set out in the Programme, a Government of Renewal. The programme stresses the need to reform the tax system, in particular to relieve the tax and PRSI burden on those with low incomes. Tax reform will favour the incentive to work, tackle the poverty trap, aim to reduce the tax wedge and encourage enterprise development.
The main principles underpinning my three budgets have been to reward work, promote enterprise and strengthen social solidarity. In these budgets, I have introduced significant measures to relieve the tax and PRSI burden on employment. Such measures have included considerably increasing personal allowances and exemption limits, widening the standard rate band and reducing the standard rate of income tax. A new PRSI-free allowance was introduced in 1995 and increased to £80 per week for most employees in the 1996 budget. In addition, in this year's budget I also reduced the main rate of employee PRSI by 1 per cent.
As a result of these measures, the tax burden, for example of a single person on the average industrial wage have been reduced from 31.3 per cent of gross income in 1994 to an estimated 27.2 per cent in 1997. In the case of a married couple, one earner, two children, on the same income level, the tax burden will have fallen from 23.4 per cent in 1994 to 20.1 per cent in 1997. This represents continuing real progress towards making employment more attractive.
More needs to be done, of course, towards improving further our competitiveness and the incentive to work. In Partnership 2000, the Government have agreed to introduce over the period of the programme, personal tax reductions of £900 million on a full-year basis. This year's budget took a significant step towards implementing this undertaking, in that the personal tax reductions introduced amounted to £393 million on a full year basis. It is planned that the remainder of the personal tax reductions will be provided over the 1998 and 1999 budgets.
Another important step taken in this year's budget, is the first step in the reform of the Family Income Supplement agreed in Partnership 2000. This reform will change the way in which FIS is calculated from a gross income basis to a net income basis. This first step will mean that FIS will now be calculated on income net of PRSI and levies and coupled with an increase of £10 per week in the income threshold will mean a minimum increase of £6 per week in the vast majority of cases. These changes in FIS, by exceeding the relevant social welfare rate increases, will make it more attractive for people with families to take up employment. For example, when the increases announced in the budget take effect, a single income family with two children in receipt of long-term UA who take up employment at the relatively low sum of £150 per week will, when FIS is included, have a take home pay of almost £60 per week more than their previous social welfare payment. Even allowing for the loss of some secondary benefits, this is a significant improvement and, hence a real incentive to return to work.
In addition to the changes in the Family Income Supplement which I have just mentioned, another important improvement which impinges on the work incentives is the way in which child income support has been changed. This Goverment have set about a policy of increasing child benefit while freezing the child dependant allowances associated with social welfare payments. Since child benefit is not dependent on the income or employment status of the parent, it does not contribute to the poverty trap. Including the changes announced in this year's budget, child benefit has been increased by 50 per cent for the first two children and by 56 per cent for third and subsequent children since this Government have taken office.
Accordingly, this Government has made significant progress to date in the reform of the tax and welfare systems, within the financial constraints placed on us. This should make work more attractive to those on social welfare payments. We are also committed to further improving the incentive to work through the future reform of the tax and welfare systems planned in Partnership 2000.
