Dáil Éireann Debate, Wednesday - 26 January 2005
359 Mr. Bruton asked the Minister for Finance when the small income exemption limit was last increased; the value it would now represent if it had kept a pace with increases in personal tax allowances; the cost of restoring the small income exemption limit to that level; and if he will make a statement on the matter. [1186/05]
View answerThe general exemption limits were last increased in 1998-99, apart from a small upward rounding in 2002 because of conversion to the euro. It stands at €5,210 for a single person and €10,420 for a married couple. There are child additions of €575 for the first and second child, and €830 for third and subsequent children. The general exemption limits have not been increased in recent years. This is as a result of a deliberate policy of removing those on low incomes from the tax system through increases in the personal credits rather than through higher general exemption limits.
The approach taken is in line with the recommendations of the expert working group on the integration of tax and social welfare systems 1996, which considered that the exemption limits should effectively be phased out. At the time, the interaction between the system of marginal relief, which is an integral part of the exemption limits arrangements, and the withdrawal of family income supplement was seen as potentially giving rise to a negative impact on work incentives as well as causing severe poverty traps for a small number of people in a narrow band of income. The group also held that it was difficult to justify, as a matter of principle, the imposition of high marginal rates of tax on low income.
The age exemption system, however, remains in operation to the benefit of a significant number people aged 65 and over, and their spouses. The cost associated with reviving the general exemption limit system, by reference to the increase in the aggregate value of the personal credits, is set out below. The aggregate value of the basic personal tax credit and the employee, PAYE, tax credit has increased by 184% from a combined allowance of €5,016 to a combined credit of €2,850, which equates to a combined allowance of €14,250 at 20%.
I understand from the Revenue Commissioners that if the general exemption limits were increased in value by the same percentage as the combined value of the personal credits, that is, 184%, they would now have a value of €14,796, single, and €29,592, married. Assuming a similar percentage increase in the child addition to the exemption limits, and also in the associated marginal relief limits, the total cost to the Exchequer would be about €226 million in a full year in post budget 2005 terms.
