Breeda Moynihan-Cronin
Question:22 Mrs. B. Moynihan-Cronin asked the Minister for Social, Community and Family Affairs the steps, if any, he will take to ensure that the taxation of social welfare payments is deducted at source. [2872/98]
Priority Questions. - Taxation of Social Welfare Payments.
Short-term social welfare payments have been treated as reckonable income for tax purposes since 6 April 1993 in the case of disability benefit and 6 April 1994 in the case of unemployment benefit. Long-term payments such as social welfare pensions have always been reckonable for tax purposes. The extent to which a tax liability arises in an individual case will, of course, depend on the level of other income which a social welfare recipient or their spouse receives in the relevant tax year.
All social welfare payments by my Department are made directly to the recipient without deduction of income tax. In the case of disability benefit recipients who are employed, arrangements have been made for employers to apply taxation on the basis of my Department notifying the taxable amount of disability benefit to be taken into account. Where the recipient is not employed, the Revenue Commissioners take into account the disability benefit paid when adjusting the tax free allowances of the recipient or his/her spouse. They take account of unemployment benefit paid when dealing with claims for refunds of tax after a person becomes unemployed, when employment is resumed or when reviewing the tax affairs of recipients or their spouses.
The previous Government decided in October 1995 to defer plans for the introduction of a system of direct taxation of short-term social welfare payments and to continue with the existing indirect system. A major factor in that decision was the likely impact of direct taxation on a significant number of recipients, many of whom would be on relatively low rates of payment. I have no plans at present to change the current arrangements.
In the context of Partnership 2000, arrangements have been agreed to reduce the impact of taxation on income for certain social welfare benefits. Under those arrangements, with effect from 6 April 1997 the first three weeks of disability benefit were exempted for tax purposes and this will be extended to six weeks with effect from 6 April.
The Minister transferred part of my question to the Minister for Finance. I wish to read it into the record as it indicates the reasons for my concern: "and if his attention had been drawn to the hardship and friction this is causing in many households where the main earner is issued with a substantial tax bill at the end of the financial year". In my constituency of South Kerry——
A question, please, Deputy.
I wish to explain how the difficulty arises.
It is not appropriate to give an explanation. A question, please.
Will the Minister agree that the issuing of a tax bill at the end of the year to people on unemployment benefit, particularly women whose spouses are working and who take up seasonal work for four or five months causes great difficulties? Will he also agree that this goes against the principle of PAYE? If there was a legal challenge to this system the Department of Social, Community and Family Affairs would be in difficulty. Is there any way this burden on people, particularly those on unemployment benefit, can be eased?
I support the decision by the previous Government to defer plans for the introduction of a system of direct taxation of short-term social welfare payments as it would make the system very bureaucratic. With all due respect to the Deputy, the introduction of such a system would be very unpopular as the present system works well. When the previous Government looked at the issue in 1995 it was estimated that approximately 20,000 people in receipt of unemployment benefit would suffer a reduction in their weekly payments if they were taxed at source. It was also found that 5,300 recipients of disability benefit would be liable to tax. It was accepted that any move in this area would impact on people on relatively low rates of payment, the less well off in society. There are cases where difficulties arise, but taking into account the examination carried out then and that carried out subsequently by me and the concessions suggested in Partnership 2000, the position has somewhat eased.
I agree some people were in receipt of low social welfare payments, but the problem arises where the spouse is working. Friction is caused in households when at the end of the year the spouse receives a bill for £300 or £400 and the person drawing unemployment benefit feels his independence is gone. That causes much more hardship than would a reduction of £1 or £2 per week from the social welfare payment. Some people find it very difficult to pay the lump sum and have to take out a loan for that purpose. Will the Minister have discussions with the organisation for the unemployed to see if a solution can be found to this problem?
One of the main tenets of the Government is to reduce the overall level of taxation to a stage where the vast majority of tax-payers will be on a rate of 20 per cent. That may impact on those to whom the Deputy refers. I am always open to argument about anomalies that have arisen in the system. While I accept there may be difficulties in some cases, it is better to leave the system as it is because it is working well.
There are many women who are not happy with the present system.