Dáil Éireann debate -
Tuesday, 30 May 2000

Vol. 520 No. 1

Priority Questions. - Family Income Supplement.

Paul McGrath

Question:

32 Mr. McGrath asked the Minister for Social, Community and Family Affairs the payments available to a family with three dependent children, with one earner, on £240 per week under the family income supplement scheme; the net effect of a wages rise of £10 per week, £20 per week, £30 per week and £40 per week taking account of his tax liability, assuming mortgage interest relief of £1,000 per annum and expenses in employment of £75 per annum; and if he will make a statement on the matter. [15079/00]

Mr. D. Ahern

A family with three dependent children, where gross earnings are £240 per week, and claiming additional tax reliefs as outlined by the Deputy, will have an entitlement of a weekly payment of £24 under the family income supplement scheme. The net weekly household income in such a case will amount to some £257.70.

A wage rise of £10 per week in gross earnings would result in an increase of £3.55 in net weekly household income; a £20 wage increase would result in an increase of £8.10 in net income; a £30 wage increase would result in an increase of £14.65 in net income; and a £40 wage increase would result in an increase of £23.84 in net income. The detailed figures are set out in a table which I will circulate in the Official Report.

I should point out that there is a time lag in re-assessment for FIS. If a person in receipt of FIS gets a wage increase, the FIS payment is not reduced until the next renewal date. In the short- term, therefore, the increase in net income would be higher than the figures I have given.

I understand the Deputy is concerned about the potential for a fall in income when entitlement to FIS is fully exhausted and the level of tax payable increases. I recognise the point being made by the Deputy in this regard. Any system which relies on income thresholds may give rise to poverty traps at the point where income marginally exceeds that threshold. In the context of the desirability of ensuring that there is always a positive return from increases in wages, I will continue to explore the potential for further easing any remaining employment traps. In general, however, I believe that the FIS scheme is very effective in ensuring workers with families and on the low incomes have a real incentive to take up and remain in low-paid employment and to improve wages.

Table 1

Couple with three children – one earner

	£
Tax-Free Allowances	12,400.00
PAYE allowance	1,000.00
Mortgage Interest Relief	1,000.00
Work expenses	75.00
Total tax-free income	£14,475.00

	Weekly gross income
	£	£	£	£	£
	240	250	260	270	280
Tax	–	–	–	–	0.36
PRSI	6.30	6.75	7.20	7.65	8.10
Levies	–	–	–	–	–
Net Income	233.70	243.25	252.80	262.35	271.54
FIS	24.00	18.00	13.00	10.00	10.00
Total Income (Net)	257.70	261.35	265.80	272.35	281.54
Effect of £10 wage increase		+3.55	+ 4.55	+6.55	+ 9.19

Mr. McGrath

I thank the Minister for that report. The Minister will recall that we had a similar discussion in this House three years ago when we spoke about the poverty traps that exist in relation to FIS and the marginal tax rate. At that stage the Minister said almost exactly what he said today. He said there was a poverty trap which needed to be examined. What progress has been made? According to the figures the Minister has given, a person getting an increase of £10 loses 66% of that increase and a person gaining £20 loses 60%. Is that not ridiculous, and does the Minister not consider he should address this as a matter or urgency? It relates to families on £240 a week with three dependent children. That is low income. Something needs to be done to eradicate that poverty trap.

Mr. D. Ahern

I made substantial changes in the recent Social Welfare Act, where I abolished PRSI on wages under £280 a week. I also made major changes to health levies. These changes gave back £105 million to people on low incomes across the spectrum. People earning up to £280 are gaining at least £5 or £6 extra because of changes to those levies, apart from taxation benefits. Given the increases in FIS, their incomes will be much better this year than in previous years.

Mr. McGrath

The Minister is missing the point which is that for a person in receipt of FIS or on a marginal rate of tax, the benefit will be wiped out by losses resulting from the reduction in FIS and because of the tax rate. Does he not see there is a poverty trap in that sector, and that this needs to be sorted out, irrespective of any other measures that are taken? These are people the Minister could target specifically. They are on low income. They are struggling to survive. There is a disincentive for them to work, perhaps even an incentive to drive them into the black economy. Does the Minister not believe he has a responsibility to eliminate that poverty trap?

Mr. D. Ahern

Reform of FIS is being considered in the context of the Programme for Prosperity and Fairness where there is a commitment to examine the whole issue of tax credits. That may be the way to resolve the problems to which the Deputy refers. There will always be difficulties when a line is drawn and people fall the wrong side of it. That is always the case in social welfare. However, an objective look at the changes to taxation in recent months and to, the levies and overall pay which was agreed in the PPF will reveal that people, particularly those on low incomes, will get a minimum increase of about £20 per week. People earning approximately £170 a week will get a minimum increase of £20 this year alone as a result of the policies adopted by this Government.

Mr. McGrath

The Minister has it all wrong. He is talking about the better off, the better paid people who will gain £20 or £30 a week.

Mr. D. Ahern

No.

Mr. McGrath

People on low pay, people in the bracket to which I refer, families on £220 to £230 a week, will gain a very small amount, perhaps 4% or 5% additional take-home pay. That is as much as it amounts to. The low paid did very badly out of this budget. Many of the commentaries on the budget state that very clearly. The better off did extremely well. It seems the Minister supports that policy.

Mr. D. Ahern

I disagree with the Deputy. Taking the tax changes that were made in the budget, the levy changes and the commitments made in relation to wage increases in the PPF, which will be implemented this year, people on £170 – which is lower than the figures to which the Deputy refers – will be better off by a minimum of £20. People on higher amounts will gain more. That is the reality.