Dáil Éireann debate -
Thursday, 20 Mar 1997

Vol. 476 No. 6

Written Answers. - Tax Credits.

Michael McDowell

Question:

36 Mr. M. McDowell asked the Minister for Finance his views on the introduction of tax credits as distinct from tax allowances as provided for in the Partnership 2000 Programme; the gross and net gain to the Exchequer of standard rating all tax allowances; and if he will make a statement in relation to this Department's projected time-scale for the introduction of tax credits. [7694/97]

Minister for Finance (Mr. Quinn)

As the Deputy is aware, in paragraph 3.14 of Partnership 2000 on tax credits the social partners recognised the complex policy and other issues that are involved in any move to tax credits and standard rating of personal allowances. In view of the complex issues involved, the social partners therefore agreed that the issue should be the subject of further examination before end-September 1997. I would hope to get this process under way in the near future.

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 can be viewed as an alternative means of pursuing goals which might be equally advanced within the framework of the present allowance system. I would expect that this and all other aspects will be fully examined under the terms of the procedure agreed under Partnership 2000.

The only relevant information available as to the gain to the Exchequer from standard rating all income tax allowances is in relation to the direct gain to the Exchequer in income tax yield if the change referred to in the question was enacted for the income tax year 1997-98. On this basis, I am informed by the Revenue Commissioners that, following the enactment of the changes announced in this year's budget, the estimated gain to the Exchequer from confining all income tax allowances and reliefs to the standard rate would be of the order of £750 million in a full year. If confined to the main personal allowances the gain would be closer to £550 million. However, it should be pointed out that the gain here arises from a reduction in tax relief for all 48 per cent and some standard rate taxpayers such that without further change to the tax system the numbers of taxpayers paying tax at 48 per cent would increase from around 36.5 per cent at present to the order of 60 per cent of taxpayers.