JOINT COMMITTEE ON SOCIAL PROTECTION debate -
Wednesday, 15 Sep 2010

Building a Fairer Tax System: Discussion with Social Justice Ireland and Departmental Officials.

Vice Chairman

I welcome the delegation and guests in the Visitors Gallery. I am delighted to welcome Fr. Seán Healy and Sr. Brigid Reynolds. I hope they feel they are among friends and I look forward to their presentation, after which I propose to invite colleagues to comment and ask questions.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If witnesses are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not comment on, criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside of the House or an official by name or in such a way as to make him or her identifiable. I record the apologies of the Chairman, Deputy Jackie Healy-Rae, who I understand is detained on parliamentary business.

Fr. Seán Healy

I thank the Vice-Chairman for his welcome and for the invitation to appear before the committee. We have supplied to committee members copies of our latest publication, Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits. Some time ago, we supplied copies to the Department of Finance and others who might be interested in it. The study is also available free of charge on our website, www.socialjustice.ie. The study addresses two key issues in Irish social and economic policy. The first of these is the need to reform and develop the taxation system to make it fairer. The second is the need to address the issue of the working poor. Many people with jobs receive an income below the poverty line. It is important to note that according to the latest figures, one in every three households at risk of poverty is headed by a person with a job. This needs to be addressed. The study shows that making tax credits refundable would benefit 113,000 low-income individuals in an efficient and cost-effective manner. When children and other adults in the household are taken into account, the total number of beneficiaries would be 240,000 people. The cost of making this change would be €140 million, and this costing is in stark contrast with the estimate provided last year by the Department of Finance to the Oireachtas Joint Committee on Social and Family Affairs, which claimed the cost would be €3 billion.

Two issues arise concerning tax credits. The Government should make tax credits refundable because doing so would make Ireland's tax system fairer, address part of the working poor problem and improve the living standards of a substantial number of people on low incomes. The second issue concerns the costing. This study raises serious concerns about the Department of Finance's calculations. Evidence based policy making should be based on solid evidence. Given that the costings supplied by the Department were out by more than 95%, the proposal has been badly served by poor evidence from a source on which we should be able to rely. The Department has been doing this since 2001 despite repeated challenges and a range of research which demonstrated that its calculations were wrong.

Several issues need to be noted. It is important to set out the story to date. Under the programme for prosperity and fairness national agreement, a working group on making tax credits refundable was set up in 2001. I was a member of that group and we presented a proposal on the matter. Officials in the Department, the Revenue Commissioners and other members of the committee, including employers, raised certain concerns. There was a danger that young adults would leave third level education if they could get this entitlement. Another problem was illustrated to us with the example of a millionaire who employed his or her spouse for one day to claim the refundable tax credit for the rest of the year. The question of whether a cost would be imposed on employers was of particular concern to IBEC. Finally, we were asked whether the self-employed should be included.

In response, we redesigned the proposal and submitted it in writing to the working group. On the issue of students, we decided those aged 22 years or younger should be excluded from the scheme to ensure they did not have an incentive to leave third level education. We still think that was the correct decision. On the issue of stopping the millionaire from employing his or her partner for one day or week, as we were trying to target the working poor, we decided that the person trying to get the credit would have to show an employment record. We suggested that a figure of approximately €100 per week for 40 weeks, which is close to half the minimum wage, would at least provide a track record of employment. On the third issue, we designed the system in a simple way so that there would be no cost to employers. In other words, employers would have no involvement in the administration of the scheme and entitled individuals could claim the credit at the end of the year through the Revenue on-line system or in writing by following a procedure that is already in place. That was a critical issue in this context. This would avoid significant additional costs because a new system would not be required. People can, for example, reclaim medical and other expenses at the end of the year. We included the self-employed so that they could benefit from the system to the same degree as employees. Income from self-employment has been included in the study as income considered for the satisfaction of the minimum employment income eligibility criteria.

Our proposal is set out on page 25 of the study. Among the parameters of the scheme is a requirement that a person have unused personal or PAYE credits in the relevant year. In other words, his or her income would have to be so low that the tax due on it is less than the value of the two main tax credits. We did not focus on other tax credits simply because they are not available to everybody and are specialised in one way or another. Individuals must be in paid employment, at least 23 years of age, have earned a minimum annual income of €4,000 over a minimum of 40 PRSI weeks and must not have earned a total annual income of greater than €15,600. In 2007, which is the last year for which data is available, €15,600 was the minimum wage. Married couples must not have earned more than a combined total of double that figure. Payments on the scheme will be made at the end of the year.

It is critically important that we develop evidence based policies. The Government has argued this case very strongly and we continue to support such an approach. We have regularly provided evidence in support of this proposal and would argue the Department has simply provided assertions. We have never been given data that would allow us to replicate a study showing whether the claims on this expenditure were incorrect. We strongly argue that the norm on any policy issue when the numbers are in dispute should be to open the various estimates of cost to independent calculation and verification. We have supplied all the details on our calculations, which are based on a CSO database involving 14,500 individuals and 5,500 households. Anybody with access to that database can replicate the study and I guarantee he or she will get the same result. The Department has simply asserted the cost based on what it claims it can know from tax records but we challenge its assertion. When the evidence differs by a factor of 20, we have to closely investigate the costings. We are providing our evidence in great detail and we stand behind it. Our research was conducted by the Trinity College Dublin economists, Dr. Micheál Collins and Mr. Robert Ryan. Dr. Collins was appointed by Government to the Commission on Taxation.

We have supplied copies of the study to the Department and we are scheduled to meet officials from the Department and the Revenue Commissioners to explain the methodology used and, if they so desire, to go through it line by line with our researchers. We are happy to do this because we are convinced this peer-reviewed study will stand up to any kind of scrutiny. The peer reviewers were required to hold a PhD in economics. We are in pretty good shape in terms of whether our figures are accurate, therefore. Our data source was the EU-SILC database. This is a massive database which is available to researchers and we thank the CSO for its help in this regard. The Department claims it makes its calculations based on data garnered from tax returns by the Revenue Commissioners. However, this database is not open to researchers. The conclusions it has produced on this issue are ridiculous and incapable of being replicated.

The integration of the tax and welfare systems is critically important for the future. Making tax credits refundable would go a long way towards integrating the two systems. This has long been a goal of Government policy and has been in successive programmes for Government. If implemented, this proposal would have a positive impact on integrating the systems.

As members will be aware, our preferred option is a basic income system. We have discussed such a system with the committee on previous occasions and we think it is the best option for the 21st century. However, a wider debate will be required because the system would involve structural change of some substance. Making tax credits refundable is an altogether separate issue which does not require a judgment on the basic income proposal. We should not confuse the tax refund proposal with a basic income system simply because we are making the proposal. We have been advocating the introduction of a basic income system for more than 20 years because we have argued that it is by far the best way to go in terms of the longer term 21st century economy that is emerging. That is food for thought for another day, as we are now talking about integrating tax and welfare, tackling the working poor issue in a targeted way and fighting the poverty being experienced by a third of the households at risk despite the head of such households having jobs. They are, in effect, the working poor.

We would be happy to clarify any questions or respond to any issues. We welcome any comments in that regard.

Vice Chairman

I thank the delegates for a strong and thought-provoking presentation. I will now open the floor to my colleagues.

Deputy Michael Ring

I welcome Fr. Seán Healy and Sr. Brigid Reynolds. They have made it sound so simple today that one might wonder why the Government did not act in the good times. It will be very difficult to get the work done in the bad times.

I am glad to hear the delegate speak about the working poor. For too long the impression was that people who worked were fine, but that is not the reality. Those who currently work, especially those on low pay, are under severe pressure because they do not qualify for many social welfare payments. Although some may be in receipt of family income supplement, others do not qualify for anything, including the medical card. They are in serious difficulty.

The details outlined would be a way to reward people for working. Some suggest that people may be better off in the social welfare system. That should not be the case. People who work should be better off and should be rewarded for it. I compliment those who compiled the report, which I read in recent days. I asked myself why the Government did not take on the task in better days.

I am sure the delegates have spoken to the Department and the Revenue Commissioners and they have probably given all the reasons they should not have done this in better days. It will prove more difficult now, when the revenue is needed, to introduce these ideas. I support the initiative as those on low income should be rewarded and supported. Currently employers argue that it is difficult to get people to work because they may be better off on social welfare with all the available secondary benefits. It is very difficult for people to take employment on low income. It is not worth the effort. We must address that and the work of the delegates goes some way to doing so. I support their efforts and I will question the Department on why it does not introduce these measures. The Revenue Commissioners wants to bring in as much money as possible to the State, which is understandable in these difficult times.

I compliment the delegates on the report, which sounds good and looks easy. It is wrong that the measures were not introduced when we could afford them. I would like to know what the Department will say on that. The delegates have spoken to the Department and the officials but do they believe the officials will agree to this in the bad days?

Vice Chairman

Thank you, Deputy.

Deputy Michael Ring

A colleague criticised us on a national radio programme recently with regard to banking questions and people walking away. I do not object today but from here on, I would like the questions I ask answered.

Vice Chairman

I am not the Chairman. I am in the hands of members. The tradition has been to bank questions from several members before the delegate replies. If the Deputy wishes to change that process I would not have a problem. Colleagues must reach a consensus on this.

Deputy Michael Ring

As the spokesperson for Fine Gael, I may ask a question. I stopped the practice in another committee. I stayed in meetings for two hours; that will happen with any meeting as I stay to the end. I do not like 20 questions being asked without receiving an answer. I do not object today because we are dealing with a sensitive issue and I support what is happening. When I come to meetings from now on, I expect questions asked of people to be answered before we move on.

Vice Chairman

There would have to be agreement on that but I have no problem with it.

Deputy Róisín Shortall

We might discuss how to conduct the meeting in private session.

I welcome Fr. Healy and Sr. Reynolds and thank them for the presentation. This is a very worthwhile proposal and I very much welcome the additional work done in refining it. There has been very detailed work in costing the proposal as well.

I was quite concerned on reading the presentation from the Department. There does not seem to be a meeting of minds on the critical issue of costing. We have a definite figure from Social Justice Ireland of €140 million for the refined proposal. I am disappointed that the Department has not commented in detail on the figure. The figure the Department continues to use is €3 billion, which is used on three occasions in the presentation. It has not responded to the most recent proposal and figure, which at €140 million is very affordable.

This committee could have a role in bringing the two sides together and formulating a definitive figure. Perhaps we could consider in private session bringing in an independent person to adjudicate on the matter to try to engage the Department on the figures presented in the proposal leading to €140 million. I would like the Department to engage on that figure; if it can find fault with it that is fine, but it should tell us where there is disagreement over costings. There has not been engagement. I know from the use of the €3 billion figure on a number of occasions that the Department is indicating that this is too expensive. We have new figures and the Department should engage with them. The committee must drill down to the bottom of the issue. I hope we will do so over the coming weeks and months.

The proposal recognises a key issue that many people on low incomes are facing currently, especially families where the income is from welfare. As we know from the work of the Vincentian Partnership for Social Justice, in many cases that is not sufficient to allow people live a life with dignity. If one of the members works for the minimum age, the family is not really any better off, meaning there is a significant poverty trap. We all know the benefits of somebody in a household working and the difference it can make to self-esteem, ambitions for children and so on, so we should encourage it. As the figures stack up currently and as the system works, there is no encouragement when we talk about minimum wage.

This is a critical proposal that we must pursue. It is about making work pay for those in the low-paid areas. We have a responsibility as a committee to further the proposal. We know from people coming to our clinics that when the sums are done when a job is offered, the additional costs involved in going to work may lead to them not being any better off. This is a way to deal with the specific issue and has much to recommend it.

I have a few questions to put to Fr. Healy in this regard. On the administration side in the Department and with employers, is there an estimate of additional cost and will it be a significant burden on both sides? One of the comments by the Department was the threshold of 23 years, although I understand fully why it is there. The question was raised as to whether it could be open to legal challenge because of discrimination on age grounds. What is the view of the delegates in that respect?

Most of us come across examples where the real difficulty and poverty trap occurs where there are children in a family. This proposal would assist single people without children as well as families with children. At the moment, the family income supplement helps families with children. I wonder why the delegates did not consider the effect of increasing the family income supplement or amending or refining the current system. Why do they believe there is a benefit to introducing a system of refundable tax credits rather than continuing with the current system?

Deputy Joe Carey

I thank Fr. Healy and Sr. Reynolds for their presentation today. This is a critical issue. We should encourage people into the workforce. If we could do that by introducing a scheme such as that proposed by the delegates, we should do everything we can to make it a reality. I commend them for using an evidence-based approach, as they have been encouraged to do. How can they explain the gulf between the figures they provide and those provided by the Government? The Government says such a scheme would cost €3 billion to implement, while the delegates maintain the cost would be €140 million.

The delegates said they have engaged with various bodies in the past. What level of engagement have they had? Did they sit down face-to-face with them or exchange documents? Have there been other such documents? Have they sought other meetings based on this, and what sort of reaction have they had? I support Deputy Shortall's proposal that we as a committee push this issue and perhaps seek an independent person to bridge the gap in the figures. Do the delegates have any idea of where they are falling down in this regard? I compliment them on their work. This is an important issue on which we as a committee should work.

Senator Nicky McFadden

I welcome Fr. Healy and Sr. Reynolds and thank them for their comprehensive reports. They have all the i's dotted and the t's crossed. I compliment them on the level of minute detail they have gone into to make sure their proposal is credible and that it stands up. Other speakers have commented on the difference between the figures of €140 million and €3 billion, which is really quite extraordinary. I know from my clinics that one in every three households is on the poverty line and is living from hand to mouth. The scheme would probably be cost neutral because most of these people, otherwise, will end up giving up work and going on social welfare because they cannot afford to work. That is my experience. Have the delegates done any research in this regard? These are people who do not receive rent allowance and are not entitled to a medical card. They are not entitled to fuel allowance, back-to-school allowance or any other such allowances if they are working. It is a case of penny wise and pound foolish.

This winter will be particularly hard on people because of the increase in energy costs and so on. The people who are now going to the Society of St. Vincent de Paul for help are those who would heretofore have contributed to the society. They are the new working poor. Will the delegates comment on the fact that there are people who will have to give up work because they cannot afford to work?

Deputy Seymour Crawford

I am sorry for being late; it was outside my control. I thank Fr. Seán Healy and Sr. Brigid Reynolds for being with us today to deal with this issue. There are so many issues causing problems to public representatives and anyone dealing with the new poor. One example is that of a young man who came to me in desperation because he had lost his job. He did not know how he would provide for his family and meet his various payments. I asked him to go through the problem with me. When we considered what he would be able to obtain in social welfare benefits, it turned out he was better off than he had been in his full-time job, which he had never considered leaving. This is something we must consider very seriously. We must make sure those who are working and are under pressure are given the best possible help.

Yesterday, a man in his 40s rang me from St. Davnet's Hospital, where he is receiving treatment for depression because of his current situation. This represents a serious cost to the State. The man is suicidal. This is something we cannot ignore. We must consider every possible way of dealing with it.

I will not go over all the questions that have already been raised. Clearly, there is a serious discrepancy between the figures of €3 billion and €140 million for the implementation of the proposed scheme. I have more faith in the figures of Fr. Healy and Sr. Reynolds than in those of the present Government, from which we hear figures one day of so many billions to bail out Anglo Irish Bank, and the next day tens of billions. We need to obtain clarity on this issue. If this committee can do anything to achieve this, it will be an important step forward. Whether through the means of the delegates or those of the Department, the new poor must be provided with help. People look at public servants and say, "They are well off; they have jobs." The top echelons are extremely well off. They did not have the same cuts in their salaries as those at the lower levels. However, those at the lower levels have made commitments based on the idea that they had a job for life. They have mortgages and other commitments, and now their children are entering third level education and they just do not know where to turn.

I welcome the delegates' proposals and their efforts to try to come to grips with this issue. As a committee it is important that we support this effort on an all-party basis.

Deputy Catherine Byrne

I thank the delegates for their presentation, which I flicked through, although I am not someone who is very knowledgeable about the tax system. The impression I get of what is happening is based on my trips to the supermarket at the weekend, when I see what people are not putting in their baskets. I hear what is happening in the shops when I speak to the local shopkeepers. People are just buying the basics now. They buy milk and bread, very little meat and few vegetables. The system that encourages people to stay on social welfare rather than getting up in the morning and going to work needs to be radically overhauled, and the system of tax credits is also in serious need of change. People come to my clinic and tell me that Mary and Joe down the road can afford a holiday every year but they cannot. It shows how badly the system needs to be overhauled. Becoming a lone parent is a ticket to social welfare payments for many young people out there. They choose to become lone parents because they are not able to continue in education due to the lack of places on all the new courses. Very little is happening in local projects because their money is being withdrawn. Many young people are turning, in desperation, to other things. The whole social welfare system is in need of radical reform. We need to identify those who get up in the morning to go to work to try to keep food on the table for their children. If this is a way it could be done, it should be done straight away. All of the others have said the same. This should have been done in the good times; we should not have waited until now when we are at the pin of our collar in trying to do something about the matter. There is a good deal in this that I have to try to digest, but I thank the deputation for its presentation.

Vice Chairman

I call Deputy Mullen——

Senator Rónán Mullen

That is presumptuous.

Vice Chairman

I have no problem in encouraging the Senator.

Senator Rónán Mullen

If it ever happens, it will hardly be in the Vice Chairman's constituency.

Vice Chairman

Thank God.

Senator Rónán Mullen

I come from a different part of the country. I add my voice to those of others in support of the work done by Fr. Healy and Sr. Reynolds. They always do their homework well and with a persistence which does them credit. Any proposal that could be characterised, fairly or unfairly, as costing money is likely to be met by a lukewarm reaction not only at the highest levels but also throughout society. That is why we need to examine the discrepancy on which others have commented.

I support what Deputy Shortall stated about the possible role the committee could play in trying to evince or elicit an accurate answer on the strange conflict between the accounts of the Government and the deputation. The value of an independent person cannot be underestimated. I do not believe anyone is under an illusion about the ability of the Government to get figures badly wrong and misread situations. Sometimes we can cod ourselves into believing that, because there is a large bureaucracy at its disposal, the Government will not be biased and is unlikely to make mistakes. In recent times we have seen how on other issues both propositions could be seriously questioned.

The deputation has raised important issues that affect many. There are 113,000 low income earners, which figure increases to almost 250,000 when one factors in the members of the families involved. It is, therefore, too important an issue for us to ignore. It must receive very close attention, especially at this time of year in the run-up to the budget.

Vice Chairman

There is plenty for Fr. Healy to think about. There are 83 days to the budget.

Fr. Seán Healy

Yes, we have plenty of time to do this. I will deal with the issues concerning numbers, the Department and the role of the committee. Sr. Reynolds will deal with some of the specific issues raised.

I thank the committee for its response, comments and questions. Let us deal with the numbers first. Our view is that policy should be based on the evidence available which must be independently verifiable. If there is no great difference between those proposing and opposing a particular proposal on the basis on the evidence, it becomes a political issue concerning whether it would be a good idea to introduce or bring something to an end. However, let us consider a situation where there is serious division or disagreement. In this case, there has been disagreement since 2001. There are fundamental differences between the Department and the Revenue Commissioners on one side and us on the other. We have consistently produced evidence and arranged for others to conduct studies for us and published them because the Department has consistently dismissed anything we have done without serious engagement. We have raised these issues with the committee on a couple of occasions, as members will be aware. We have constantly produced evidence to support our proposal. We maintain that this is what we have done. Anyone else can go away and replicate and punch holes in the evidence, if holes can be punched in it. However, the Department has never engaged with us on our work. It keeps coming back to state it has the tax records, that it knows what the story is; that we do not; that it is right and that we are wrong. I am sorry. That is an assertion which has not been subject to verification. When arguments start in the academic world about the cost of this or that proposal, there is a straightforward process. One conducts research which is peer reviewed and then published. Others can go and conduct exactly the same research and verify whether the numbers are right. That is the way it should be done and what we have done. In effect, we have arranged for researchers to do this. They have carried out a detailed study and I have no doubt whatsoever that if they were called upon by the Department to conduct the same study to examine the cost involved, they would produce exactly the same result.

The second issue is: what is the response of the Department likely to be? Several others, included Deputy Ring, have referred to this. Given the reception we have received, I am not optimistic. During the years we have been consistently dismissed when we have done this. Successive Ministers for Finance, not only one, to whom we have talked before the budget, have asked us what it is about this proposal that causes apoplexy in the Department and that puts people through the roof. They wonder about the response the proposal receives.

Let me recall one case and I will not name anyone. I will be very careful. I recall the time when the social partners — the community and voluntary pillar — met the Minister for Finance, Deputy Brian Lenihan, in his first year in the job. They have met the Minister for Finance before the budget since the pillar was created in 1997. Ours is one of the representative organisations. There are 17 such organisations. The year before last the Minister was present with a range of officials who included a Second Secretary General, not the Secretary General; apparently there are several Second Secretaries General. When we mentioned this proposal in passing, the Second Secretary General went through the roof. He started shouting at us and dismissing the proposal as unacceptable because our numbers were wrong and that their numbers were right. The point is we have been shown no data and given no access to data or research findings. I am certain that if we were given access to such data, the Department would not trust the results or believe anything we would produce because, for some reason, it does not seem to believe what we produce on this issue. That is why we have been getting others of repute to do this for some time. I would like to see someone else, under the aegis of the committee, taking up this issue. I have no doubt our researchers, the economists from Trinity College, would be very pleased to engage with them in the same way that they will be happy to engage with the Department in several weeks time. A meeting is scheduled to take place between them and whoever the Department sends. I would like to determine whether there is evidence which suggests this study does not stand up and there is a problem with it.

The database we are using is the EU-SILC database which covers 14,500 people and almost 5,500 households. It shows the money streams of each individual household. There might be a pension, child benefit, interest received on an investment, payment for work done or a social welfare payment. It would be very easy to examine a given cell and calculate whether such a household would be entitled to a refundable tax credit and, if so, how much it would be entitled to receive. It is a brilliant sample. It is a huge mega sample involving 14,500 people and there are 5,500 households. That is the daily base we used and the methodology that was used. I cannot see how there can be another database that comes to the conclusion that it will cost 25 times more to do this.

A final point raised by Deputies Ring, Shortall and Byrne was why it has not been implemented over the past ten years — the cost is the issue. We have no doubt that if the costing was identified as €140 million on day one, this would have been part of the furniture for the past eight or nine years. That is an interesting point because it means that the working poor have been denied €140 million a year for the past decade practically, on the basis of this calculation — or what we would call a serious miscalculation. That is another issue that needs to be addressed. There are some very serious issues here. We would very much welcome the committee playing a proactive role. We will co-operate with whatever plan it puts in place. I guarantee that our research team will do the same. I hand over to Sr. Brigid Reynolds to deal with issues raised by Deputy Shortall and Senator McFadden on FIS.

Sr. Brigid Reynolds

The issue of FIS has been raised many times. The committee knows how it works as well as I do. It is one of those policies that works well in theory but badly in practice. That is all one can say about it. The ESRI and others have done different studies to ascertain why the take-up is so low. Much of it is about perception and fear. People are afraid that if they take up FIS they will lose the medical card. If they have children, that is the one thing they do not want to lose. We hope to do a follow-up, a serious study, on FIS.

Deputy Róisín Shortall

It is not popular with employers. They regard it as messy.

Sr. Brigid Reynolds

Yes. When speaking about employers the Deputy raised the question of administration. From the point of view of this study, the idea is that at the end of the year the person would claim his or her refundable tax credit so there would be no cost and the employer would not have to be involved. We are very conscious of people moving in and out of work which is another issue that arose. People would have seasonal work and so on so it is important to keep it clean.

Fr. Seán Healy

There were two other issues that arose. First, was the under-23 rule open to constitutional challenge? I do not think so. If this is open to challenge on age grounds, what one has is a rather ridiculous system. A 15 year old could stack shelves for a few weeks in the summer with entitlement to a refundable tax credit for the year. That makes no sense. Neither would the 15 year old look for it. Policy must be sensible and discrimination law must be sensible. I am not familiar with the detail but it is the first time that anybody suggested to us that there might be a problem on grounds of discrimination. When we made the proposal in 2001 to the working group chaired by the Department of Finance, the issue of discrimination on age grounds did not arise. Since then it has not been an issue.

The second issue raised by Deputy Crawford particularly and Deputy Byrne was that we need to encourage people to work. Senator Mullen said the same. For us it is critically important that it should always be worthwhile for a person to take up employment. It should always be worthwhile to stay in employment, to be promoted and to have one's pay increased and not wind up in a worse-off situation because of losing one's medical card or some other benefit or because some quirk in the tax system drives one into a worse-off situation. The ultimate goal of integrating the tax and welfare systems was to stop that kind of occurrence. We would consider that to be the type of nonsense that needs to be cut out of the system and that could be cut out of the system. What we propose today is serious work aimed at making a contribution. We do not say it will eliminate all the problems and lead to full integration of the tax and welfare systems. However, we note it has been part of the programme for Government for some time that the tax and welfare systems should be integrated. This goes back to the third last Minister for Finance. It is not a new issue on the Government agenda but yet there is still some distance to go. This would be a substantial help on taking the issue forward. We would certainly be positive about that and do other things in terms of trying to support it.

Senator Rónán Mullen

On discrimination on age grounds, we should not concern ourselves about claims that these measures could be discriminatory. One thing we can say about anti-discrimination legislation is that unless it has many exceptions built into it, the law easily becomes an ass in this area. In existing anti-discrimination legislation there are already examples of where it is permitted to discriminate on age grounds. For example, if an employer has to employ a person who is getting close to retirement age, it is legitimate to make a distinction on age grounds because of the amount one would have to invest in that person. Wherever those claims come from, they are pretty lame. It is always open to the Legislature to carve out another exception or whatever is necessary to allow a good policy proposal to work. With regard to claims about these measures being discriminatory, there is absolutely no problem in making the necessary adjustment.

Deputy Róisín Shortall

May I add to that? The Department of Social Protection does discriminate between people of different ages in regard to the amount it pays in respect of job seekers allowance. It has done that in recent years so I think that debunks the argument.

Fr. Seán Healy

If there was an insistence that one could not discriminate on age grounds, then everybody — even children — would be entitled to old age pensions, in which case the law becomes an ass. There is recognition in the system that the law is not an ass. The law recognises that there must be differences between different age groups. This fits here. Everybody wants to ensure in this context that young people progress into third level education of one type or another, whether post leaving certificate, the institutes of technology, or the universities. If people leave school at 18 or 19 years of age and undertake a three or four-year degree course they will then be 22 years of age and hopefully will get into a paid job if one is available. I will not go down that road today. That is why it makes sense at that point. The actual amount of money involved in varying that by a year is very small. The numbers are given in the study.

Vice Chairman

I thank Fr. Seán Healy and Sr. Brigid Reynolds for attending today and acknowledge the work they do and their assistance to all members of the House. I look forward to that on 8 December 2010. I thank the delegates.

Deputy Róisín Shortall

It is before the budget that the Vice Chairman needs to read it so that he can influence his colleagues.

Vice Chairman

I should say to the Deputy that if she is picking on me, I have had that contact with Fr. Seán Healy as I am sure he would acknowledge. I presume the delegates will stay in the Visitors' Gallery.

Fr. Seán Healy

Absolutely.

Vice Chairman

I look forward to seeing your reaction. I thank the delegates. I will invite the other officials to take their places.

Sitting suspended at 11.59 p.m. and resumed at 12.02 p.m.

Vice Chairman

I convey the apologies of the Chairman, Deputy Healy Rae, and my colleague, Deputy Cyprian Brady.

I welcome from the Office of the Revenue Commissioners Mr. Eugene Creighton, assistant secretary; Mr. Paddy Molloy, principal officer, and Mr. Seán Leake, principal officer, and from the Department of Finance Dr. Vincent Palmer, principal officer, and Mr. Ambrose Murray, assistant principal officer. I also welcome the support staff from the Office of the Revenue Commissioners: Ms Kathleen Corley, assistant principal officer, and Ms Denise Tully, administrative officer.

The formula for the meeting is that there will be a presentation by the officials on their findings which will be followed by a question and answer session. I ask members not to question officials on matters of policy which, as we know, is a matter for Ministers. They are also reminded of the long-standing parliamentary practice or ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. By virtue of section 27(2)(i) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence in relation to a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. If that does not frighten them, I welcome Mr. Creighton and his colleagues. Is he making the presentation?

Mr. Eugene Creighton

No. My colleague from the Department of Finance, Dr. Palmer, will make the opening statement.

Deputy Róisín Shortall

May I excuse myself from the meeting, as I have to travel to Roscommon? I will read the transcript later but would like to make a comment before I leave. The figures from the Department have been circulated to us and it is a pity they have only been placed on our desks now. It is very difficult to consider them on the spot. I look forward to addressing this issue at our next meeting and examining the possibility of employing an economist.

Vice Chairman

We wish the Deputy a safe trip. She should remain calm.

Dr. Vincent Palmer

I thank the Chairman for the invitation to attend the meeting to give the joint committee our response to the proposals set out in the Social Justice Ireland report entitled, Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits, which was published in July. We have provided members with a copy of the presentation which we hope will assist the committee in its discussions. We will be happy to answer any questions the Vice Chairman and members may have.

As the Vice Chairman will be aware, we cannot express a view on the merits or otherwise of Government policy. Therefore, our comments will be confined to what is factual. We can point out to the committee the issues which will need to be considered in any policy decisions to be taken on proposals contained in the SJI report. As members will be aware, the report sets out a scheme for the introduction of refundable tax credits. The scheme would be limited to personal and PAYE tax credits and sets a number of restrictions on the income earners who would be eligible. Using a database derived from the 2006 European Union survey of income and living conditions, the report estimates the cost of the scheme based on the final number of eligible income earners after the application of the restrictions.

I would like to comment briefly on a number of features of the scheme proposed by Social Justice Ireland. It would involve a person making a claim for a refund of unused credits some time after the end of the tax year. Such a refund system could be made to work. The group which examined in 2002 the possible role of refundable tax credits devoted a great deal of time to examining ways such credits could be integrated with the payroll system and concluded that it would be extremely complicated to set up such a system. On the other hand, a refund system could work along the lines of the medical expenses relief scheme, as indicated in the SJI report.

The scheme proposed would involve a number of significant restrictions. The Department accepts that the more restrictions placed on refundable tax credits the fewer the number of persons who would benefit and, consequently, the lower the cost to the Exchequer. However, we would have concerns if the restrictions were arbitrary so as to be unfair. For example, it would be very difficult to maintain the age restrictions. Restricting refunds to those aged 23 years or older, as proposed, could give rise to serious equity issues, although I am not saying they could not be got over. I cite as examples two single mothers, one of whom is over 23 years who would receive a refund and the other under 23 who would not. Under the existing FIS system, there is no such distinction. How could a refundable tax credit system succeed in so doing? That question must be asked.

Granting refunds to those with social security contributions for 40 weeks in the qualifying year could potentially reduce the numbers of beneficiaries. Again, there would be an equity issue between PAYE workers who are recorded as having a contribution only if they are in paid work for a minimum number of weeks, whereas those who are self-employed are recorded as having contributions for a full year unrelated to the number of weeks they work.

There would also be certain disincentives to work. While the report contends that would not be the case, we can see instances where there would be such disincentives. We can give examples if members wish.

The potential cost is crucial, as pointed out in earlier discussions, in the consideration of the policy proposal made. The Department of Finance and the Revenue Commissioners have previously stated to the committee that the cost of a limited refundable tax credit scheme would have been in the region of €3 billion, if introduced in 2009, but the meaning of the word "limited" in this case is that tax credits would be available only to those included in tax records.

The Revenue Commissioners have costed the Social Justice Ireland, SJI, proposal using tax files for 2006, the tax year used in the SJI report. Its calculations used 2.2 million tax cases on the Revenue record for that year and these represent 2.6 million individual income earners. Its calculations show that using the parameters of the SJI scheme and taking the same assumption used by the SJI regarding the number of persons under 23 years of age, the cost is much lower than the figure of €3 billion mentioned earlier but is nonetheless still many times higher than the figure of €140 million estimated in the SJI report. I emphasise that this age criterion is the only assumption required to be made by Revenue. All the other steps in Revenue's calculation are purely factual relating to the tax records for 2006. Revenue's calculations gave a cost of just over €700 million for the SJI scheme.

The cost of any scheme of refundable tax credits would depend on the parameters involved. Restrictions are, by their nature, arbitrary and restrictions proposed by the SJI, which differentiate on the basis of age, income levels and weeks in employment could be difficult to maintain. It is our experience that in the absence of objective grounds to support them, other than only cost reduction, such restrictions come under pressure from the moment they are introduced. Any relaxation of these restrictions inevitably drives up the cost of refundable tax credits and a complete relaxation would give rise to a cost for 2009 of approximately €3 billion and for 2006 the cost, which is comparable, would be €2.1 billion. This cost is without extending the scheme to those who are not on the Revenue record. There was a discussion on that aspect and the identity of those people on the last occasion we appeared before the committee.

The policy makers have to ask themselves what they are trying to achieve by introducing such a scheme, which would be a form of basic income, as espoused by CORI in the past and by the representative of the SJI today. Apart from any cost issue, the key question would be who would benefit, who would lose under such proposals, would the scheme target the resources available best by using the tax system rather than the public expenditure system and which would give the best value for money. That choice is a matter for the Minister and the Government of the day. Any Minister for Finance would be delighted to provide additional help to the working poor who are the subject of the SJI report. However, the questions I mentioned clearly would be to the forefront of his or her deliberations on the matter.

The issue of making tax credits refundable was examined recently by the Commission on Taxation. The report of the commission sets out a case for and a case against such a scheme and concludes as follows:

On balance, we do not recommend a move to refundable tax credits at this stage. If there is not an appropriate level of uptake of the direct expenditure support through measures like Family Income Supplement payments within a five-year period, the question of refundable tax credits should be considered as a policy option to ensure a more equitable distribution of resources.

In summary, our view is that the system proposed by the SJI is one that could be made to operate. There are, however, serious concerns about the arbitrary nature of the restrictions within the scheme and whether these are sustainable or could be regarded as equitable. If they are not equitable, then they would not be viable or practical and the cost of the scheme would increase. There are also concerns about the disincentives to work.

With regard to the costing of the scheme by the Revenue Commissioners using the tax records for 2006, these are the tax records that would be used to make payments to taxpayers under the SJI proposal. The costing shows that the estimate in the SJI report is a substantial under-estimate of the cost involved.

On the two allegations made by the representatives of the SJI concerning the Department of Finance and the Revenue Commissioners, the first allegation is that the costings by the Department and Revenue of making tax credits refundable is "95% wrong". We are not wrong. The cost of such a scheme limited to those on the tax record would be €3 billion in 2009 terms, which is the figure we gave the members the last time we were here, and the corresponding figure for 2006 would be €2.1 billion. The cost of the SJI proposal, published in July relating to the tax year 2006, with all the restrictions involved relating to income, age and so on, is €702 million to be precise. It is also alleged that we costed the CORI proposal. We did not, as we were not given any details of its scheme on the last occasion. Up to now we have not costed the SJI proposal, as the details of that scheme, which are welcome, were published only in July of this year. That is all I want for say for the moment. My colleague, Mr. Creighton, would like to say a few words on certain aspects.

Mr. Eugene Creighton

On the administrative practicality of the current proposal from Revenue's point of view, I confirm that the Revenue Commissioners can operate a refundable tax credit system on an end of year basis, as set out in the report being considered. The end of year review basis would remove many of the difficult administrative problems we previously identified with administering refundable tax credits on a current year basis, which caused problems in other countries such as the UK and US in terms of getting matters wrong, giving refundable tax credits to the wrong people, false claims and other such problems. The end of year review proposal would put such a measure in a different space in terms of administration. However, the end of year review proposal would still give rise to several operational and administrative issues which would need to be dealt with. It would be necessary to develop new IT systems. Revenue would have to switch resources from other work. It would be necessary to ensure that the system, as developed, would be as robust as possible in terms of minimising the possibilities of fraud and error in the system in terms of giving refundable credits to people who would not be entitled to them.

In terms of numbers, in 2006, which seems to be the year on which we are focused, more than 600,000 people applied to the Revenue Commissioners for tax refunds. We calculate that the number of persons eligible for refundable tax credits under the proposal would be in or around 530,000. That would lead to more than 1.1 million cases requiring to be reviewed on an end of year basis. That would constitute a significant increase in the workload facing Revenue. It would mean new resources would be required, which are unlikely to become available, or resources would have to be diverted from other work such as tax collection and tax audit work to manage such increase in work. Not everyone uses IT and some of the people who would benefit from refundable tax credits would probably submit manual claims, which would need to be dealt with manually. It would be necessary to ensure that people who claimed such credits were entitled to such claims and that they would not have other income derived from other sectors of the economy which might not be declared to Revenue. We will need a system to ensure that the refundable tax credits are delivered to people who are income poor by virtue of low income and who are not income poor by virtue of using tax reliefs or tax exemptions, who could inadvertently get refundable tax credits because the bulk of their income is sheltered from taxation.

Chairman

I thank the witnesses for their presentation. I call Deputy Ring.

Deputy Michael Ring

I welcome the delegation and its presentation. The big issue relates to the delegation's figures and the figures we were given previously. I am sure the delegation will have no disagreement with appearing before the committee again when perhaps we can get somebody to arbitrate independently between the two groups so we can arrive at a figure — I will not describe it as accurate as both sides are saying they are accurate — on which this committee can agree. Would the witnesses be prepared to appear before the committee in that regard and to make available the statistics and whatever else is necessary to do that?

Dr. Palmer made a point about certain disincentives for people to work. Will he elaborate on his thinking in that regard? I believe there are disincentives for people to work. The people who are really suffering are the new poor, the people on low income. As we said earlier, they are caught in the trap with regard to medical cards, back to education and support under the back to school clothing and footwear scheme simply because they do not receive a social welfare payment. The scheme proposed by the previous speakers would help and support these people. It would also be a reward for working.

The big issue relates to the witnesses' costing. Is there total resistance to this within the Department? That might be a policy question. Everybody wants revenue to come in due to the problems that exist. We accept that and we are aware that resources and money are scarce. I do not wish to be disrespectful but we have received figures in the past from the Department of Finance relating to other matters which were not very accurate either. They were very inaccurate. I hope the witnesses will appear again before this committee so we can ascertain who is right and wrong on the figures and move this issue forward. It is not the Department of Finance or the Government that is suffering but the people on low income. They are the people I wish to see protected and getting the best return if they are working and there are tax reliefs for them. They are the people who should be supported because they need support.

Senator Nicky McFadden

I thank the delegation for its concise report. The witnesses said something very positive, that they believed this refund system could be made to work. I compliment them on that. It is about being positive and finding ways to help the working poor. This means €15 to €20 euro per week for somebody getting a tax refund. Being able to afford to have fuel or to buy bread and basic necessities for a family makes a difference from being hungry or cold. It is incumbent on CORI, the committee, the Department of Finance and the Revenue Commissioners to sit around a table and find ways to ensure this works. I said to the representatives of CORI earlier that I believe it would be an incentive for people to give up work if they found they could be better off on social welfare. Deputy Ring asked for examples and I hope the witnesses will clearly outline the disincentives they mentioned.

In response to Mr. Creighton, I am aware from my clinics that many people have medical expenses and refuse collection expenses refunded. Until recently, dental expenses were refunded although it is not happening now. These expenses have been refunded so I do not accept that it is a big issue for the Department to put a system in place. It is very good at putting systems in place.

The other issue is the age restriction. In the last budget clear differences were made in jobseeker's payment between young people and older people. I do not for a minute accept the example given by the witness of a 22 year old unmarried mother and one who is 23 years old. There are ways around all these situations and they are happening in other Departments all the time.

This is about sitting around a table, putting our heads together and finding ways to make this work, as the witnesses have said it is possible to make it work.

Deputy Seymour Crawford

I thank the delegation for the information. I wish to follow up on the issue of jobseeker's allowance. The sad reality of what has been done with that has forced many young people to emigrate. They simply could not live on it, especially those in rural areas who need a car to try to find work. I have no doubt the witnesses will give a very good explanation of why that can be done but other things cannot be done. It certainly caused many problems for people in rural areas.

The witnesses said they would be glad to give examples of how this would discriminate if the restriction to 23 year olds was introduced. Regardless of whether they accept or are prepared to go along with this issue, politicians and civil servants must examine ways and means to ensure a fair structure is in place for people on low income. I am constantly dealing with this situation. I represent a rural constituency. If a young couple live a few miles from a town, are in receipt of social welfare, have a medical card and have children who go to school, they automatically get free bus tickets, clothing allowance and so forth. However, if they are on a low wage or one of the partners is working, their chances of getting those benefits are very small. There is suddenly no incentive to go to work. I accept it is not easy at a time when incomes in general are getting lower but we must devise ways and means to ensure there is no poverty trap in this area. There is a poverty trap at present. I have never seen so many people under so much pressure. They are begging for medical cards and for some relief in their situation.

For some reason there appears to be a major difference between what these witnesses and the previous witnesses have told us. We must find some means to reconcile the two or to explain the reason for the difference. The witnesses have given us data that provides food for thought. It certainly would have been useful to us before the meeting in terms of perhaps asking different questions of Fr. Sean Healy. However, we must try to move this issue forward as public representatives and without playing party politics. I am talking to my colleagues across the floor of the House on this issue. There are so many serious issues, with many people under pressure and even suffering depression due to the current structures. We must ensure that a format is found, through FIS, tax credits or whatever, to ease the situation. It is so sad to see young couples having to leave this country. I was in the UK in the past few weeks and despite all the difficulties there, there is a now a different attitude and a bit of life. We do not have that and we must try to devise a different structure that will allow people to have a future and to stay in this country.

Vice Chairman

I call Senator Boyle.

Senator Dan Boyle

I thank the Chairman for the opportunity to ask questions. In regard to the figures supplied to us today by the Department of Finance, it seems it is talking about an average annual repayment of more than €1,300 and a weekly repayment of approximately €25. That would seem to be at the top end of what would be available given the tax credits of which people can avail. I presume this is being done in the context that 50% of those in the workforce are not liable for income tax. That would weigh heavily towards using the maximum amount of repayment.

In the last budget, the Minister for Finance indicated his willingness to consider widening the tax base. That means widening it at the higher and lower ends. I presume any decision on that, whether in terms of social insurance or income tax, would impact on these figures making them lower again.

I could not understand the argument on the criteria about age because we already have that distinction in the social welfare system. It came in in the last budget. If we are talking about implementing what is a central aspect of Government policy, namely, to move towards the integration of the taxation and social welfare systems, I would have thought the Department of Finance would need to be proactive in this, notwithstanding what was said at the start of the presentation that it does not involve itself directly in policy. However, this is stated Government policy and we need to move towards integration of the tax and social welfare systems, of which refundable tax credits would be a central element. I would like confirmation of that from the Department of Finance officials because that would help in terms of where we are in this particular debate.

Whatever the alternative costings and the method chosen by Social Justice Ireland in terms of particular criteria on income levels and age grounds, there are alternative ways to introduce such a system. It could be introduced on a phased basis. It could be done on the basis of a certain amount of the credit being available in year one, year two, year three and year four. It does not have to be the big bang approach. What has bedevilled this debate in the past decade has been the approach of the Department of Finance which has always treated it like a big bang. I have never heard anyone argue that it had to be that way. One could say that a certain number of people being given the full amount in year one would cost whatever. Billions of euro have been mentioned. Even the figure the Department of Finance mentioned today is less than some of the tax rebates we had in some of the budgets over the past ten years. If we are talking about social justice and social equity, we must give ideas like this very real consideration.

Vice Chairman

I call Deputy Thomas Byrne.

Deputy Thomas Byrne

I am sorry I was late. I was told the meeting was at 11.30 a.m.

Vice Chairman

We missed the Deputy.

Deputy Thomas Byrne

It was my fault. I only arrived at 12 o'clock, so it is still no excuse. I apologise.

I compliment Senator Boyle on his excellent contribution which he should probably tweet. I agree with almost everything he said. We have had a good debate on this. There is a divergence on the figures and I am interested in the point Senator Boyle made as to whether this is Government policy. If it is policy, that is great but we must consider the implementation of "if". What Fr. Healy proposes is desirable. The question then arises as to whether it is affordable.

I agree with the point on the various restrictions, which I believe was mentioned. If we were to introduce this system, I could see constituents coming to my clinics stating that it is not fair and that they have missed out at different levels. Perhaps that is not a reason to say "No" to it.

Another point made by Senator Boyle, with which I fully agreed, was that something like this could be introduced on a phased basis. I refer to making the tax system fairer. The gap between welfare and work is almost always thought of in terms of reducing welfare. Perhaps this gives a sort of alternative analysis to that debate.

The reality is that it will cost money. I would like to do this, as I am sure would the Minister. Even the officials say that any Minister for Finance would be delighted to do anything to help the working poor. In my constituency, I sometimes think the poorest households are the working poor which are perhaps just over the thresholds and qualify for nothing, in particular in regard to children going to secondary school and third level. That is a huge problem which must be addressed. This will not address all those problems because many on significantly higher incomes would come into the category of the working poor.

This committee has a job to do. I would not be in favour of some sort of arbitration between the Department and voluntary bodies. Perhaps Senator Boyle's suggestion goes some way in terms of phasing in something like this because then maybe one would get a better idea of the cost and whether it was possible to do this.

Dr. Vincent Palmer

We were asked about disincentives. We are not the only ones to mention disincentives. The Commission on Taxation also referred to that issue. I will give the example of an individual on the minimum wage working ten hours per week, as described in the SJI report, and who would have an earned income of approximately €4,000 per year. The SJI proposal would entitle him or her to a refundable tax credit of €2,324. This would bring total income to €6,324 for the year.

If, for example, the individual was offered five more hours work per week, it would bring earned income to €5,967 per year resulting in a refundable tax credit of €1,927. This would bring total income to €7,894 per annum. This is a 50% increase in work for only a 25% increase in pay. The pattern repeats. If one doubles the hours to 20 hours per week, there is a total income of €9,485. That is twice the work for only 50% more income.

The other aspect is the figures. The figures the Revenue Commissioners have given the committee are calculations based on the tax record, the very records from which the Revenue Commissioners would have to make payments. As far as we are concerned, the €140 million produced by the SJI report is totally discredited. This SILC data simply do not give the correct result because they are based on a survey of approximately 5,000 or 14,000 people. The tax records relate to 2.6 million income earners and that is on what the Revenue Commissioners have done their calculations. I say "their calculations" because they are not estimates. As I said in my opening statement, the only estimates are those in regard to age. They made the same assumption as SJI. As I also said in my opening statement, I will not comment on policy.

On the restriction to those over 23 years, the problem with that is that it is an arbitrary restriction. There is not any reason for it other than to reduce cost. If that is all that is behind it, it will not stand up. One could do it another way. In response to Senator McFadden, one could, for instance, not allow the refund to students and, in the case of someone who is in full-time education, one might achieve a very similar result. I stated in my opening statement that is not insuperable. I am simply stating that one must do it in a way that is not arbitrary.

In response to Senator Boyle, I accept that one could phase it in. One could have any restriction one liked. For example, one could simply allow it for the personal credit, for half the personal credit or for any multiple of that. One could phase it in, but one still ends up with a very significant cost. We know that the cost would have been €700 million in 2006 and it would only be higher for 2010.

Senator Dan Boyle

Surely tax revenues have reduced in the meantime. Surely it would be lower.

Dr. Vincent Palmer

I will allow my Revenue colleagues to respond. Credits have gone up. That is the only response I can make to the Senator on that one.

Mr. Eugene Creighton

May I respond?

Vice Chairman

Just a second, Mr. Creighton. Senator McFadden wished to comment.

Senator Nicky McFadden

Dr. Palmer — who may correct me if I am wrong as I may be misquoting him — stated that the Department had not taken into consideration in its costings the various criteria necessary for individuals that Fr. Healy had outlined in his presentation to the committee. Will there be a forum where both parties would discuss these criteria that the Department did not know about and perhaps cost it in a different way?

Dr. Vincent Palmer

Today we circulated to the committee the costing that gave €700 million, which is exactly the SJI calculation. We followed exactly the way it is done on page 25 of the report. We copied exactly the way they did the calculation using the SILC data.

Senator Nicky McFadden

As my colleagues stated, the discrepancy between the two is——

Dr. Vincent Palmer

It is enormous.

Senator Nicky McFadden

——enormous. I am merely asking if there is some level we could reach at which we could discuss this and, perhaps, find an outcome to it. Dr. Palmer, in his opening statement, stated that it is possible and desirable and Senator Boyle stated that it is part of the programme for Government. Even though Dr. Palmer will not discuss policy, it would be wrong to go away from here without finding some sort of level on which we could communicate and, maybe, find a solution and bring the two figures closer together.

Mr. Eugene Creighton

This is comparing apples and oranges. The figures produced by the Revenue Commissioners and the Department of Finance interrogate the actual tax records — persons' tax returns and the P35 returns made by employers. It is real data. On the other side, there is an extrapolation from a survey of 15,000 persons representing 5,000 households. Really, one cannot compare those two types of approach to try to make them agree. It may be a question of looking at the various approaches but one will never reconcile two approaches like that.

Turning to something Senator McFadden raised in respect of the administration of the system, I made the point that there would be administrative issues from an end-of-year review. I did not use the word "big" issues. The Senator stated that she did not think there would be a big issue here. While I do not want to over-emphasise the administrative difficulties, I do not want to under emphasise them either. There will be a big job in putting a system in place that will deliver these tax credits. The example offered was the systems of bin relief and medical expenses relief for which one does not even have to produce the receipts. The system is receipts based — one spends money and gets relief in respect of what one spends. In contrast, the refund tax credit system is on a different scale in terms of what needs to be checked and the conditions to obtain the tax refunds. One needs to check whether the person paid tax in the year. If the person did not pay tax, one needs to check whether he or she had used up his or her full tax credits for that year. Once one has passed those hurdles, one must check whether the person is in employment, or if his or her income is from passive income. One then must check the person's age, if the person is 23 or over. One then must check the level of the income. One must check the person's PRSI contributions for the year. One must check the person's total income for the year in terms of the limit. Then one must check, in the case of a married couple, against a married couple's joint income for the year. No matter what way one slices that, it is quite heavy checking.

There would be a big obligation on the Revenue Commissioners to ensure that the right persons get the tax credit refunds because this is not a tax refund. Persons would not get back the tax they paid; it is a direct subsidy from the State. There would be a big job in ensuring that the system is robust. I am sure the Comptroller and Auditor General is conscious that this is Exchequer money being paid out to persons and he would need to know that the system, and the way the Revenue administers it, ensures that the money gets to the right people.

Error and fraud have proved to be very real issues in the case of the working tax credit in the UK. Given the way our tax system operates sometimes here, I see no reason to believe that it would not become a real issue here as well. In the UK in 2006-2007, the UK authorities detected attempts to defraud — I refer to defrauding, not errors on which there is another issue — the working tax credit and child tax credit system of £250 million or €372 million, of which £212 million was detected before any amounts were paid out. In the US, there has been a similar type of system in trying to combat fraud in respect of the earned income tax credit. I merely make the point that, even though we believe we can make it work, it will take many resources and there are likely to be many issues in establishing a proper system.

Senator Dan Boyle

We are talking about computer software here. We are not talking about individual checking of each person's tax affairs. It should not take that much effort. We are living in a technological age. We put aside the ledgers. This is a matter of months' work to come up with appropriate software that would do all the checking for all the criteria of which Mr. Creighton spoke.

Mr. Eugene Creighton

No doubt the PAYE Anytime system will be available. The amount of development is quite significant and it should not be under-estimated. Ensuring there is a system that ensures that the persons pushing the buttons and claiming that they are meeting the various criteria will require an audit system, and there is much auditing to be done. The persons claiming these credits may or not be technologically adept. I suspect there will be quite a considerable number of manual returns. We could make it mandatory that they apply electronically, but I suspect that would not be the way to proceed with a refundable tax credit system. There would always have to be an option for manual submission of returns and claims and I imagine the majority of claims will be made manually and have to be processed manually.

Senator Dan Boyle

Surely if one is doing it at the end of the year, the Revenue has the tax records and knows who has used part or all of their tax credits. The Revenue could decide who is entitled to it without persons applying at all.

Senator Nicky McFadden

Yes.

Mr. Eugene Creighton

It applies more widely than to the employed. It applies to the self-employed and to the employed sectors. People do not fall neatly into PAYE or self-employed categories. A range of people fall into all categories. These individuals have income from employment, self-employment and other sources. I did not say that it was impossible

Vice Chairman

When this part of the meeting has been completed and our guests have left, we will be entering private session in order to deal with business that was not concluded earlier. I suggest, therefore, that we decide now how the committee intends to approach this issue.

Deputy Seymour Crawford

I wish to make two points. I may be completely dense but, in the context of job restrictions, I was under the impression that it was possible to bring not only 23 year olds but also 21 year olds into different structures on an arbitrary basis. That is what happened in the past.

With regard to payments, cheques are currently not being issued. Farmers seeking area aid, single farm or other payments have been obliged to open bank accounts in order to receive their money. Some of these individuals are 70 or 75 years of age and have never previously had bank accounts. I cannot understand why a system relating to younger people — who are far more knowledgeable with regard to bank accounts, etc. — cannot be devised. In the majority of cases, these people could be paid by electronic means.

Deputy Michael Ring

It will take a strong Minister to push this through because resistance to it within the Department is strong. A policy decision will have to be taken by the Minister. Perhaps the committee should invite the Minister to come before it prior to the budget in order that members might make the case to him.

Vice Chairman

I thank our guests for attending. This has been an interesting discussion.

The joint committee went into private session at 12.55 p.m. and adjourned at 1 p.m. until 11 a.m. on Wednesday, 29 September 2010.