Tuesday, 5 March 2013

Questions (120)

Thomas P. Broughan

Question:

120. Deputy Thomas P. Broughan asked the Minister for Social Protection the current deficit in the Social Insurance Fund; her plans to ensure that this fund is fully funded for 2013; and if she will make a statement on the matter. [11055/13]

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Written answers (Question to Social)

The Social Insurance Fund (SIF) is a pay-as-you-go social insurance scheme that is financed by contributions from employees, employers, the self-employed and by a contribution or ‘subvention’ from the Exchequer when the cost of the benefits paid from the Fund exceeds the contribution income. The Exchequer is the residual financier of the Fund and such subventions were the norm for over 40 years. For example, in 1967, the State contribution was 38% of SIF expenditure and almost 29% in 1985. From 1997 to 2007 inclusive, social insurance income exceeded Fund expenditure. In 2008, the current operating balance of the SIF moved into deficit with expenditure exceeding income by €255m. This deficit accelerated in 2009 when it reached €2.49 billion and further rose to €2.75 billion in 2010. In addition, the surplus carried forward from previous years was eliminated during 2010, giving rise to the need for Exchequer subvention for the first time since 1996.

In total, the operating deficit of the Fund over the period 2008 to 2011, inclusive, was very close to €7 billion. The Provisional Outturn for 2012 provides for a deficit of nearly €2.09 billion in 2012. Significant exchequer subvention will be required to meet ongoing expenditure requirements in the absence of reductions in expenditure levels or increases in PRSI income. I am most concerned about the deficit in the SIF and one of my key goals is to reform the system of social protection and to put it on a sounder financial footing for the future. In the context of the SIF, Budget 2011 introduced a number of changes to the PRSI system and, in Budget 2012, my colleague the Minister for Finance announced a further widening of the PRSI base from 2013 to cover rental, investment and other forms of income from 2013.

Budget 2013 introduced significant changes to the PRSI system. The Employee’s PRSI-Free Allowance of €127 per week (for those paying PRSI Class A, E and H) and €26 per week (for those paying PRSI Class B, C and D) was abolished with effect from 1st January 2013. The minimum annual PRSI contribution for people with annual self-employed income over €5,000 was increased from €253 per annum to €500 per annum. Employees who pay PRSI at Classes B, C and D (a minority of the civil and public sector) were exempt from PRSI in respect of self-employed earned income (from a profession or trade) and any other unearned income e.g. rental income. This exemption was abolished in Budget 2013. All such income is now liable to PRSI at the rate of 4% with effect from 1 January 2013 without gaining entitlement to social insurance benefits. This measure is estimated to yield €12m additional income for the Social Insurance Fund in a full year.

In 2014, it is proposed to abolish the exemption from PRSI applying to self-employed unearned income of employees (all Classes) and those with occupational pensions, which is available where they have unearned income only. The payment of PRSI at 4% on this unearned income will not give entitlement to social insurance benefits. This measure is estimated to yield €20m additional income for the Social Insurance Fund in a full year.

In addition, I established the Advisory Group on Tax and Social Welfare in 2011 in line with the commitment made in the Programme for Government. The Group will, inter alia, examine and report on issues involved in providing social insurance cover for self-employed persons while the Actuarial Review of the Social Insurance Fund will inform both short to medium term and long term policy development in relation to the social insurance system generally. Any proposals to address the sustainability of the Fund will have to be considered in a budgetary context.