Dáil Éireann debate -
Tuesday, 26 Jun 2001

Vol. 539 No. 1

Written Answers. - Income Tax.

Gay Mitchell

Question:

203 Mr. G. Mitchell asked the Minister for Finance the reason two married couples on the same joint income can pay different levels of income tax, for example, a husband and wife earning £25,000 and £15,000, respectively, will pay less income tax than a husband and wife earning £32,000 and £8,000, respectively; the reason this is the case; if he will remove this anomaly; and if he will make a statement on the matter. [18591/01]

Minister for Finance (Mr. McCreevy)

Using the figures supplied, the tax position for the two couples, assuming joint assessment and personal tax credit of £3,000, is as follows:

Couple A		Gross Income	Available Band	Couple B		Gross Income	Available Band
Husband	£25,000	£29,000	Husband	£32,000	£29,000
Wife	£15,000	£11,000	Wife	£8,000	£ 8,000
	£40,000	£40,000		£40,000	£37,000

Tax Due=Band available x standard rate (20%)

Income in excess of band x top rate (42%)

Tax liability is then reduced by the value of the couples' tax credits

Tax Due: £40,000 x 20%=£8,000			Tax Due: £37,000 x 20%=£7,400Tax Due: £3,000 x 42%=£1,260
Tax liability	£8,000	Tax liability	£8,660
Less tax credit	£3,000	Less tax credit	£3,000
Total tax due	£5,000	Total tax due	£5,660
Difference=£660

The difference results from the move to widen the standard tax rate band which was initiated in budget 2000. For a married couple with both spouses working the standard tax rate band is set at £40,000 which is double that of a single person. The £40,000 band for the two income couple is transferable from one earning spouse to the other, subject to a maximum band of £29,000 for either spouse. The £29,000 limit arises from the fact that this is the maximum band that currently applies in the case of married one income couples.

In the case of couple A, the standard tax rate band is £29,000 increased by an amount equal to the wife's income, £15,000, restricted to £11,000. That is £29,000 plus £11,000 is equal to the £40,000 standard rate band. In the case of couple B, the standard tax rate band is £29,000 plus an amount equal to the wife's income £8,000, that is £37,000.

The Deputy will appreciate that the policy of widening of the standard rate band and putting it on a per person basis, which commenced in budget 2000, is designed primarily to meet the objective set out in the Government's Action Programme for the Millennium that 80% of taxpayers should not pay tax at the higher rate. Given the move to the tax credit system this objective could be realised only by widening the standard rate band. The best way of achieving this objective was by restructuring the band so that persons are taxed on what they earn as individuals regardless of whether they are single or married. This policy will also make re-entering the workforce more attractive for a non-earning spouse.

As a result of the changes made in the band structure, the proportion of income earners on the higher rate will fall this year to 23%. The widening of the standard rate band is one of the main elements of the substantial programme for tax reductions and reform which the Government has undertaken and does not lead to any taxpayer paying more tax.

The Deputy will be aware that the Programme for Prosperity and Fairness generally supports the Government's programme of tax reform. I draw the Deputy's attention in particular to section 1.1.4 relating to band widening which provides as follows:

The social partners support the policy of establishing a single standard rate income tax band for all individual taxpayers. They also agree that the standard rate income tax band should be kept under review in the light of increases in income levels and the objective of ensuring that, over time, at least 80% of taxpayers are not subject to the higher rate of income tax.

It is the Government's intention to proceed with the policy of establishing a single standard rate band for all individual taxpayers to secure the objectives which I have outlined.