Michael D. Higgins
Question:32 Mr. M. Higgins asked the Minister for Finance the projected number of recipients of the £3,000 tax allowance in respect of stay-at-home spouses; and if he will make a statement on the matter. [5248/00]
Other Questions. - Carer's Allowance.
I am informed by the Revenue Commissioners that the potential number of recipients of the £3,000 home carer's allowance is estimated to be of the order of 242,000 assuming a full take up of the allowance by qualifying taxpayers. This number includes married couples who would become exempt from tax because of the carer's allowance.
Will the Minister agree that the introduction of this allowance runs contrary to the stated purpose of the proposal to individualise the standard rate band of income tax?
I regard the two issues as exclusive. There are many reasons underlying the rationale for individualisation of the standard rate tax band. When we come to widen the standard rate tax band to the current rate of £28,000 it would then be appropriate to make some balancing adjustment to address the issue of stay-at-home spouses with children, carers and the handicapped. We thought about this matter before publishing the Fianna Fáil taxation proposals in 1997 where I advocated a standard rate tax band for stay-at-home spouses. As I have admitted, it was not my intention to bring forward the proposal in this year's Finance Bill because I believe that the differential in widening the band by £3,000 – from £14,000 to £17,000 – was not sufficient. However, due to the issues which arose immediately after the budget I decided to bring forward the proposal that I would have brought forward in next year's Finance Bill. I regard the two issues as separate. When my colleagues, my backroom team and I discussed the matter in 1997 we recognised the problem of the stay-at-home spouse and that if we did something on one side we would have to do something on the other.
What is the estimated cost to the Exchequer in 2000 and in a full tax year from the introduction of this allowance?
The estimated cost of the £3,000 allowance in a full year is £125 million, as announced in the week after the budget.
Have the modifications in regard to allowing earnings up to £4,000 not added to the cost?
Our experience with this type of allowance is that in the first couple of years the take up is not usually as high as envisaged at the start. The rate of take-up of such schemes, together with the conditional nature of the allowance for certain two income couples who would also qualify for the extended standard rate band of up to £6,000, as provided for in section 3 of the Finance Bill, means that in all probability the original estimate of £125 million is still appropriate. Certain assumptions have to be made in regard to the take up of this allowance. It will be advertised fully in the next few weeks. The total estimated cost of the £3,000 standard rate allowance will be £125 million in the first full year.
Is there not an inherent disincentive to work in this allowance in that as soon as a working wife earns more than £5,000 her husband loses £3,000 tax free allowance?
Will the Minister consider further anomalies on Committee Stage of the Finance Bill? It is anomalous that, if a son or a daughter is carrying out the caring function rather than a parent in a one income family, the working parent cannot get this allowance. It makes no sense that if a mother is caring for a daughter the husband gets the allowance but if the daughter is caring for the mother the husband does not get the allowance.
I am sure we will discuss this matter during the course of Committee Stage of the Finance Bill.
What about the disincentive if a working wife earns more than £5,000?
I do not see it like that. I accept that in all levels of income, including the social welfare code, there are elements of disincentive which we have removed over the years. The move to widen the standard rate band, as accepted by the social partners, will be the single biggest innovation in the Irish tax code ever and will lead to all kinds of anomalies in the future and do away with evasion in the PAYE sector. I happen to believe that and time will prove me correct but we have to wait.
It is remarkable for —
Even Deputy Noonan believes I am right.