Vol. 522 No. 2
66 Mr. Stagg asked the Minister for Finance the cost of increasing the tax credit in a single year to take all those earning the national minimum wage out of the tax net; the cost of a 1% reduction in the upper and lower tax rates; the cost of the second tranche of the individualisation programme announced in budget 2000; and if he will make a statement on the matter. [18174/00]
I am informed by the Revenue Commissioners that the full year costs to the Exchequer, by reference to the income tax year 2000-01, of the changes mentioned by the Deputy, are estimated as follows.
From April 2001, with the move to a full tax credits system, the standard rated personal and PAYE allowances will be converted into tax credits. If the personal allowances for single and widowed persons were increased so that the combined total of the single allowance and PAYE allowance was equal to the level of the minimum wage, based on earnings of £4.40 per hour over an assumed standard 39 hour week and with a pro rata increase of double that amount for married persons, the cost would be of the order of £1,050 million. If the PAYE allowance alone was increased to this level, the cost would be in the region of £730 million; this is less costly as self-employed persons and their spouses are not entitled to avail of this allowance and, in addition, the allowance is not doubled for a married one earner couple. The objective of exempting the minimum wage from taxation could also be achieved by increasing the general income tax exemption limit at an estimated cost of approximately £305 million. However, as I stated during Private Members' time in the Seanad on 12 April 2000, "this would put an enormous number of people back into the marginal relief system where the marginal tax rate is 40% and would exacerbate the problems of poverty and employment traps for those wishing to return to work or earn more income . . . We do not want to go down that route again".
Reduction of the standard rate of income tax from 22% to 21% would cost approximately £115 million in a full year and a reduction of the 44% rate of income tax to 43% would cost approximately £70 million in a full year.
The cost of the second phase of the programme to individualise the standard rate bands will depend on the precise increases in the bands which are announced in the next budget. For illustration purposes, if the band for single persons is increased from £17,000 to £22,000 and from £34,000 to £44,000 for two income married couples, subject to transferability of individual bands between spouses up to a maximum band of £28,000 for either spouse, the cost to the Exchequer in a full year is currently estimated at £310 million.
These figures are provisional and are likely to be revised.
