asked the Minister for Social Welfare if he has any plans to eliminate the tax on employment effect of employers' pay related social insurance contribution; and, if so, if he will outline the details of his proposals.
Ceisteanna — Questions. Oral Answers. - Employers' PRSI Contributions,
48.
While employers' PRSI contributions are generally classed in economic terms as a disincentive affecting labour, there is in fact no agreement among economists as to how the direct effect of PRSI changes on employment should be measured. Pay related social insurance contributions were introduced in this country in 1979. This resulted in significant reductions in the level of contributions paid by employers in respect of workers in low paid employment as compared with the flat rate system before that in force.
The Commission on Social Welfare examined the effects of these reductions and stated in their report that there was no conclusive evidence that they led to an increase in employment. The report further stated that the more limited argument in favour of a reduction in pay related social insurance in labour intensive industries is questionable in that there is little proof that this would actually have direct effects on employment.
This specific issue was also examined by NESC in early 1986. The council were particularly struck by the absence of conclusive evidence on the likely employment impact of reducing employers' PRSI contributions and this was an overriding factor in determining attitudes towards the proposal. The general feeling was that if the proposal were to be justified on employment creation grounds, there would need to be a greater degree of certainty about its likely employment effects.
An 1983 EC study entitled "Social Security Financing and Effects on Employment" concluded that the room for manoeuvre within which changes in the structure of social security finance might play a role, as far as employment is concerned, is very narrow.
This issue was also discussed in an OECD report of December 1985 on labour market flexibility which concluded that cutting payroll contributions is unlikely to increase employment when other taxes have to be raised to offset the revenue loss but that changes in overall tax structures do, however, have a potential for shifting labour demands between different groups of workers in ways that might possibly add to employment and output. Under our system eliminating pay related social insurance contributions would involve an estimated loss of £670 million in 1987 which would have to be made good otherwise.
As there are over 250,000 unemployed we need to look at everything that inhibits legitimate, legal employment — I use those words advisedly. The Minister spoke about eliminating the cost of pay-related social insurance contributions for employers but that is not the subject of the question.
I am asking whether the Minister has considered eliminating the effect of it as a tax on employment and if he would consider substituting for a payroll-based contribution a company turnover-based contribution with some sort of rebate per person employed so as to reverse the present fashion among management in private and public sector alike of disposing of manpower.
I appreciate the point the Deputy is making. He asked whether I had any plans to eliminate the tax on employment effect and that is why I mentioned the cost of eliminating that as the estimated loss. The question in relation to other forms of taxation or collection of PRSI is, of course, a matter for consideration in the budget context generally.
The Minister may agree with me that the unemployment crisis is equal in importance to the financial crisis facing us and that in view of that, all possible impediments to employment should be looked at urgently. Charging an employer 12.3 per cent tax for every person he employs seems crazy in our circumstances. Would the Minister not impart some sense of urgency to this with a view to helping the unemployment situation?
I would be very pleased to support any methods which would help the unemployment problem but evidence from studies carried out does not suggest that the approach suggested by the Deputy would lead to greater employment no matter how well intentioned it might be, and which I accept it is. The other approaches are worthy of consideration and I will give any consideration I can early in the New Year to any other approach which might increase employment, in particular for those who are the long term unemployed on the live register.
49.
asked the Minister for Social Welfare the plans if any, he has to reduce the old age pension age from 66 to 65 years.
Social welfare retirement pension is payable at age 65 and old age pension, contributory and non-contributory is payable at age 66. The reduction generally of pension age from 66 to 65 was one of the issues examined by the Commission on Social Welfare in their report. The commission did not consider that the reduction in the qualifying age for old age pension was warranted at present in view of the associated cost.
The net cost of a reduction in pension age to 65 is estimated to be of the order of £34 million in a full year at 1987 rates of payment. This estimate takes account of additional expenditure on old age pensions and on fringe benefits-in-kind — free travel etc., loss of PRSI contribution revenue and consequential savings on short term social welfare payments. The question of a general reduction in pension age to 65 years is being addressed by the National Pensions Board who will be reporting to me on the question of a national pension system in due course.