Dáil Éireann Debate, Tuesday - 1 February 2005
144 Dr. Cowley asked the Minister for Finance why his Department has two different tax nets for married couples (details supplied); the further reason the home carer tax credit has not increased in the past two years; if this is meant to be a compensation for single income families; if his Department has plans to change this system; and if he will make a statement on the matter. [2414/05]
View answerThe standard rate band for a married one-earner couple is €38,400. For a married two-earner couple it is €58,800 of which €38,400 is transferable between spouses. The difference in treatment between married one-income and married two-income couples with regard to the standard rate band arises as part of the policy of band widening which was commenced in Budget 2000.
The aim was to achieve a position whereby eventually each individual would have his or her own non-transferable standard rate band, with a view to achieving several objectives: it was seen to be the most cost-effective way of moving towards a position where 20% of income-earners are on the top rate of tax. This is one of the key Government taxation priorities set out in the Government programme and endorsed in the current national agreement Sustaining Progress; it helped to deal with the situation where single people on moderate wages had a relatively high tax burden; and it also helped address the problem whereby married persons returning to the workforce faced high marginal rates of tax almost from the first euro of earnings because the full band was already being used by their spouses.
Married couples can still benefit from double personal tax credits. The employee, PAYE, credit is available only to employees and not to others so it is not doubled up for a married one-earner. However, this has always been the position for the PAYE credit which was introduced as an allowance in 1979. There are costs associated with earning an income which are likely to be greater if two persons rather than one person must work outside the home to earn the same total income.
The home carer tax credit, formerly an allowance, was introduced in Finance Act 2000 and is designed to recognise the contribution made by a spouse who remains working in the home in order to care for children or the aged or incapacitated, other than the spouse of the claimant. It amounts to €770 per annum. The provision is intended to cover situations where a spouse has forfeited a second income to care for dependants in the home. It is available only to married couples who are jointly assessed for tax.
The home carer tax credit was not increased for 2004 because of the limited resources available for a tax package in Budget 2004. Such resources as were available were used to assist the low paid and the elderly through increases in the value of the employee credit and the age exemption limits. While it was decided not to increase the home carer tax credit in Budget 2005, couples who benefit from the credit will gain significantly in 2005 from the income tax changes I announced in the budget. For example, a married one-earner on PAYE with two children on a salary of €58,800 per annum will gain €765.48 from the budget. This is made up of €658 from increases in tax credits and band widening as well as €180 from increases in child benefit, less €72.52 in additional social insurance contributions.
Nobody has lost out as a result of the introduction of the band widening policy relative to his or her former position. As a result of positive developments in the tax system over recent years, including band widening, all categories of income earner, including married one-earner couples, have seen their average tax rates fall considerably.
In an international context, the most recent data available from the OECD for 2003 indicates that for the average production worker, who is married with two children with a carer in the home, Ireland now has the lowest tax wedge — income tax, levies, and employers and employees PRSI, as a percentage of gross income plus employer's PRSI — in the EU and in the OECD. Furthermore, recently released OECD data show that the tax wedge for such workers has fallen more sharply in Ireland than in any other OECD country reflecting the progress the Government has made in this area.
