Friday, 6 September 2019

Questions (170)

Róisín Shortall


170. Deputy Róisín Shortall asked the Minister for Finance the estimate of the first and full year cost of refunding unused income tax credits to all low paid workers. [36932/19]

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Written answers (Question to Finance)

The matter of refundable tax credits was looked at in some detail in 2002 by the Working Group established under the Programme for Prosperity and Fairness. The Group was chaired by the Department of Finance and included representatives from ICTU, IBEC, the various farming organisations, the Community and Voluntary Pillar, relevant Government Departments and the Office of the Revenue Commissioners.

The Working Group found that there were significant disadvantages with such a system.  These included the potential negative impacts on the incentive to work, labour supply, labour force participation and overall productivity and output.  The Commission on Taxation in its 2009 report also did not recommend the introduction of refundable tax credits.

Furthermore, the cost of providing refundable tax credits would be extremely high.  Revenue have in the past estimated the cost of providing a limited refundable tax credit, that is, refundable only to those currently on the tax record, at approximately €2 billion per annum.

I am aware that certain Groups have proposed different schemes for refundable tax credits which are based on a number of arbitrary restrictions such as age, hours worked, income and PRSI contributions in the previous year. These Groups have claimed much lower costs for these schemes.  However, my Department and the Revenue would dispute these lower costings. 

What is not in doubt, however, is that refundable tax credits can have a negative impact on the incentive to work.  In these times when we need to encourage people to join the workforce and remain in the workforce very significant difficulties exist with the use of refundable tax credits.

The income tax and USC changes I introduced in the last number of Budgets will benefit all those who currently pay income tax and/or USC.  The minimum wage has also been increased over recent Budgets and now stands at €9.80 per hour, in an effort to support those on lower incomes.  Continued progress in this area will be made in the context of resources available in Budget 2020 balanced against all of the competing demands.