Vol. 510 No. 2
4 Mr. Perry asked the Tánaiste and Minister for Enterprise, Trade and Employment her views on whether any increase in PRSI contributions acts as a direct addition to the cost of employing skilled people at a time when the economy urgently needs to increase the level of skills available; the initiatives, if any, which will be implemented to address the problem; and if she will make a statement on the matter. [22018/99]
My starting point in response to the Deputy's question is to urge that we must keep this issue of labour shortages and skills bottlenecks in perspective. The Irish national action plan for employment sets out a compre hensive range of actions aimed at addressing the challenge of mobilising labour supply and ensuring we have the skills and competencies relevant to a modern economy. The thrust of Government policy over recent budgets has been to reduce the overall burden of labour taxes and to reduce the tax wedge. I propose that we continue with this overall strategy.
This recognises the need to improve the reward from, and attractiveness of, work and in that regard I refer to the initiatives taken in last year's budget in terms of the introduction of tax credits, the removal from the tax net of a person's earnings up to £100 per week, the restructuring downwards of payroll levies and improvements in the operation of family income supplement. I am confident we will see more in the next budget.
What impact will the 20 per cent increase in employers' PRSI in the last budget have on employing skilled people? Is the Minister aware that the social insurance fund has increased by 50 per cent since 1987 and that the Government does not make any contribution to it? Will she consider bringing employers' PRSI back to the 1998 levels of £28,000, particularly as this would help in the employment of skilled people, who are needed in the economy?
The Deputy is right that the fund is in surplus to the tune of £200 million this year. That is because of the huge increase in employment in the economy. The household budget survey, published earlier this year, indicated that for April 1999, as opposed to April 1998, there was an extra 97,000 people at work.
A number of issues affect the incentive to employ higher skilled or higher paid people, such as the wage levels which must be paid. That is a function of supply and demand. In the IT sector, where there is generally a shortage world-wide, young and inexperienced people can command high salaries. We need to find new and additional ways of encouraging employers to reward workers without necessarily increasing nominal pay substantially so that we remain competitive. I am thinking of profit sharing, gain sharing and employee share options. While these operate at present, we could do more in the tax system to encourage the further use of these mechanisms because they help to keep employees in a company for a longer period of time. There is much concern about mobility in the labour market. Companies which spend a considerable amount of time training new staff often find that in a short time they move on to their competitors for substantially increased wages. Companies need to consider how they can create incentives for people to stay with them.
As regards the public sector, we must examine other mechanisms, such as efficiency funds. If public servants deliver services more efficiently and use new technology, they should get a share in the improvements which accrue to the State, particularly the financial savings. We are not only talking about private sector incentives but also incentives in the public sector.
As regards the number of people in training, particularly in specific skills training, from the time the Government took office to the end of next year there will be an extra 10,000 people in various training programmes and education courses. That will help to alleviate some of the skills problems. The fact that so many work permits are being granted and so many people are coming from other EU countries will help to alleviate some of the bottlenecks which have occurred.
Is the Minister aware that small business people regard the PAYE allowance as an unjust anomaly because it does not apply to proprietary directors who pay tax under the PAYE system? As regards employing skilled people, an employer is responsible for all taxation. An employee does not look at the gross salary but at the net salary, although a substantial amount of it goes on taxation even when the coffers are overloaded with money. Employers should be given an incentive to employ more people.
The PAYE allowance has been an issue with the Small Firms Association and others for some time. If it was extended to proprietary directors, it would also have to be extended to farmers and no one would desire that. At a time when the standard rate of corporation tax will be down to 12.5 per cent across all sectors by 2003, the extra break to PAYE workers is only a small one and is justified.
