Dáil Éireann Debate, Thursday - 28 April 2022
4. Deputy Róisín Shortall asked the Minister for Finance if he will report on the research that has been carried out in his Department on the introduction of refundable tax credits; his views on the benefits of such a policy as a means of ensuring greater equity in the tax system as well as a means of addressing the widespread issue of low pay; and if he will make a statement on the matter. [21016/22]
View answerAt the outset, I extend my condolences to the Minister, Deputy Donohoe, on the passing of his mother.
My question relates to the issue of refundable tax credits. At this point in the year, six months out from the budget for which preparation is under way, it is important that we put this issue on the agenda, because we have been talking about it for quite some time and there are many benefits to it. What research has been done within the Department of Finance, and what is the Minister of State's view on this proposal?
The position is that 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 Irish Congress of Trade Unions, IBEC, various farming organisations, the community and voluntary pillar, relevant Departments and the Office of the Revenue Commissioners.
Notwithstanding the passage of time, many of the findings and conclusions identified by the working group remain relevant and valid today. The working group found that there were significant disadvantages with such a system. These included the potential negative impacts on the incentive to work, which needs to be a priority, as well as the impact on labour supply, labour force participation and overall productivity and output.
The Commission on Taxation and Welfare, in its 2009 report, also did not recommend the introduction of refundable tax credits. Furthermore, the annual cost of providing refundable tax credits would be extremely expensive. There would also be operational and technical issues.
Refundable tax credits can have a negative impact on the incentive to work and may be inconsistent with the objective of encouraging as many people as possible to join or remain in the workforce. In addition, I note the minimum wage increased from €8.65 per hour to €10.50 per hour, between 2016 and 2022, in line with the recommendations of the Low Pay Commission and in an effort to support those on lower incomes.
Furthermore, the income tax and universal social charge, USC, changes that the Government introduced in recent budgets will benefit those who currently pay income tax or USC, while maintaining the breadth of the tax base and the progressive nature of the tax system.
On the issue of equity, it should be noted that Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution. This has been verified by the Economic and Social Research Institute, the OECD and the International Monetary Fund.
Finally, I reiterate that the Minister has no current plans to introduce a system of refundable tax credits.
That is quite disappointing because the situation has changed considerably since 2002, the year in which the research the Minister of State mentioned was conducted, in addition to the research from 2009. There is a substantial problem in this country in regard to low pay.
Some 22% or 23% of the working population is trying to survive on low pay and there is a significant problem with people in employment who are very poor. It is sometimes suggested that the solution to the problem of poverty is to get a job but we know, for hundreds of thousands of people in this country, getting a job means still being on very low income and struggling to survive. One of the key benefits of refundable tax credits is that they support people on low incomes and keep them out of poverty. On that basis, and given the scale of the problem with low incomes, as well as the lack of progress in moving to a living wage in spite of the commitment in the programme for Government, I ask that the Minister of State reconsiders that.
The Deputy is quite right; much has changed since those reports were produced. The principal change was the introduction of and increase to the minimum wage from €8.65 to €10.50. We would all like if this rate was higher, but that is a significant increase in the context that we had no provision for a minimum wage in legislation when that work was commissioned.
Social Justice Ireland said that the changes in the last two budgets would benefit a one-income married couple by as much as 39 cent a week. That is simply incorrect; it is just not true. The changes alone announced in the budget will benefit a one-income married couple with no children, who earn €20,000 per annum, by €445 per annum or €8.76 per week. In addition to the majority, one-income married earners receive a minimum of €165 per annum or €3.17 per week. This monetary gain will be even greater for married one-earner couples with children. Various changes were announced as part of the overall budget package, which the remark by Social Justice Ireland did not take into consideration, such as the increases in core social-welfare payments, the living alone allowance, the working family payment, the back to school allowance and many other payments.
The Minister of State said we have a progressive tax system. Yes, we do but it is becoming less progressive with tax changes. One of the ways that can be equalised is to introduce refundable tax credits. Ministers have been talking about changes to the tax system in recent times. Changes to the tax system and improvements in tax credits do not assist people who do not pay tax, and that is the difficulty. Unless the Government introduces the measure of refundable tax credits, the gap between those on low incomes and those on middle and higher incomes will widen.
The other issue is that if low-paid work is made to be more beneficial, if there were a refundable tax credit, it would widen the gap between welfare and employment. That is what we should be aiming to do; to make work pay. The work by Social Justice Ireland has shown that and it has produced the figures to support it. There is a strong case there and I ask the Minister of State to reconsider the decision.
I understand what the Deputy is saying. Looking at it strictly, the only benefit the State can confer on people is solely through the taxation system. I understand that point from a very narrow perspective. That point of view may or may not have validity but, looking at it in the broader context of low-income families, the arguments being put forward have to be reviewed in a wider context. For example, the working family payment scheme is very important, especially for people who are at work. If they have one or two children, they get a significant extra enhancement to their weekly income through the working family payment. If those schemes are-----
What if they do not have children?
Yes, it is a matter of prioritisation. We have issues in respect of medical card benefits. There are a number of other benefits-----
Not if you are working and you do not get a medical card.
You will if you are on a low income-----
No, you do not.
-----and people on the minimum wage. Many families are entitled to get medical cards.
You do not. Check the income limits.
There are broader issues than that of income tax.
There are. In-work poverty is a broad issue that needs to be addressed.
