Written Answers. - Tax Incentives.
Eamon Ryan
Question:
99
Mr. Eamon Ryan
asked the
Minister for Finance
his views as to the best way to implement the recommendation in the 2002 Irish labour market review that tax incentives should be designed to encourage female participation and should be targeted to those on low incomes, especially parents.
[12370/03]
The Deputy will be aware of the Government's tax policy priorities to keep down personal taxes and in particular to achieve a position where all those on the national minimum wage are removed from the tax net and to ensure that 80% of all earners pay tax only at the standard rate. Progress with regard to these aims is to be achieved over the Government's term of office and, of course, is subject to the overarching requirements to keep the public finances in a healthy condition and to strengthen and maintain the competitive position of the Irish economy.
Significant progress has been made towards exempting the minimum wage from taxation, which is of particular benefit to all those on low incomes, whether parents or otherwise. The position now is that 90% of the minimum wage annualised is exempt from taxation. This position was maintained after budget 2003, despite an increase in the value of the minimum wage in October 2002. The policy aim of exempting the minimum wage from taxation will help to incentivise work by reducing the tax burden for those in employment.
Progress in recent years in relation to the 80% target has been achieved by a significant widening of the standard rate band and movement towards placing it on a per person basis. One of the effects of band widening in this way has been to reduce the disincentive effect for married spouses, generally women, to enter or return to the workforce. Such persons have their own standard rate band and are no longer faced with paying tax at the higher rate, generally speaking from the first euro of earnings, as had been the case before the policy was put in place.
In addition, standard rating and the move to a tax credit system, which was completed in 2001, has equalised the value of personal allowances for all tax payers regardless of their level of income, thereby increasing the equity of the system.
The Deputy will also be aware of one of the review's other recommendations which states that "Child income support should be made more neutralvis-à-vis the employment status of parents by further increases in child benefit”. In this regard, I would point out that the Government has decided as a matter of policy that child benefit will be the main instrument through which support will be provided to parents with children. The 2001 increase of over 50% in child benefit rates marked the first step in a programme through which an additional €1.27 billion will be invested directly in child benefit and substantial increases in child benefit have been provided in each budget since then. It is intended that the €1.27 billion planned increases will be completed in 2005.
Finally, I would point out that there are significant tax credits provided in the income tax code for lone parents and widowed persons which are particularly relevant in the context of encouraging female participation. Indeed, I should advise the Deputy that progress generally in relation to reducing the tax burden on low incomes has been substantial over the last six years. Data from the EU now show that the tax wedge on those with earnings at or below that of the average production worker is the lowest in Europe. I am satisfied that the general direction of existing Government income tax policy represents the best way forward in terms of encouraging female participation and assisting those on low incomes, especially parents.
