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Dáil Éireann díospóireacht -
Wednesday, 27 May 1992

Vol. 420 No. 4

Written Answers. - Taxing of Social Welfare Payments.

Michael Ferris

Ceist:

26 Mr. Ferris asked the Minister for Finance if he will outline the arrangements that will be made for the taxing of social welfare benefits and allowances; when these arrangements will come into effect; and if he will make a statement on the matter.

Michael Bell

Ceist:

98 Mr. Bell asked the Minister for Finance if he will outline the estimated savings on the taxing of social welfare benefits; when regulations will be issued in this respect to give effect to this provision of the Finance Bill, 1992; and if he will make a statement on the matter.

I propose to take Questions Nos. 26 and 98 together.

The Finance Bill 1992, which was recently passed by the Dáil and Seanad, provides in section 15 for disability benefit (including occupational injury benefit) and unemployment benefit, and any associated pay-related benefit, to be treated as income for tax purposes. The yield from this measure is estimated to be up to £20 million as regards disability benefit and of the order of £12 million as regards unemployment benefit. Both these figures are in full-year terms and are based on the 1992-93 income tax structure: the Government's objective is for further tax reform involving rate reduction, extension of the standard rate-band and increasing the basic personal allowances, and implementation of these objectives would reduce these estimated yield figures somewhat.

Section 15 provides for the making of a commencement order or orders to bring taxation into effect. I indicated in the budget that for operational reasons bringing disability benefit into charge to tax would not be possible from 6 April, and would have to be deferred until later in 1992, while unemployment benefit would not be brought into charge until 1993. The operational requirements for taxing both benefits are still being examined. I can, however, indicate the lines on which consideration has been proceeding as regards taxation of disability benefit.

Taxing disability benefit presents substantial practical problems, because of the potential interaction between employers, the Department of Social Welfare and the Revenue Commissioners and large numbers of benefit claimants. My aim is to keep this interaction to a minimum, so as to avoid imposing excessive administrative burdens on those involved.

As I informed the House during my opening address on the Second Stage of the Finance Bill, the essence of the solution being considered by my Department, the Department of Social Welfare and the Revenue Commissioners would involve potential claimants' tax-free allowance amounts being notified by Revenue to the Department of Social Welfare. The weekly rate of tax-free allowance would be used by that Department when making disability benefit payments, with any excess of the payment over the tax-free allowance being subjected by that Department to tax in the normal way at the taxpayer's marginal tax rate. Where the tax-free allowance exceeded the benefit payment, the intention would be that the excess would be available to the employer for use against any occupational sick pay payments to the employee. The net effect would be that claimants would have their benefit taken into account in determining their income for tax purposes, and tax as appropriate would be charged accordingly.
Taxation under this system, and indeed taxation of longer-term disability benefit and disability benefit paid to claimants without an employer, cannot be introduced until 1993. However, it may be possible to introduce some limited form of taxation of disability benefit for those in employment later this year, by having employers reduce the tax-free allowance of benefit claimants in employment by the amount of the disability benefit being paid to them by the Department of Social Welfare. The net effect of this would be to curtail availability of tax refunds to employees who are claiming disability benefit; this is an important aspect of treating disability benefit as income for tax purposes. However, much work remains to be done both in this area and in regard to the longer-term arrangements for taxation and I am not yet in a position to announce an implementation date.
The operational requirements for taxing unemployment benefit also continue to be examined. It is still the Government's intention that taxation should begin in 1993.
I would like to emphasise to the House that there will be no change in the present tax status of any of these benefits until the commencement date for taxation; I hope to be able to announce a date for this in the reasonably near future as far as disability benefit is concerned. I would also emphasise that all that will be done will be to treat these benefits as income for tax purposes; the extent, if any, to which taxation will arise in a given case will essentially depend on the amount of other income the recipient has in the same tax year. In addition, in very many cases taxation will in practice simply take the form of reducing or stopping refunds of tax being made to benefit claimants.
Finally, I would point out to the House that section 15 of the Finance Bill provides that a positive motion of the Dáil, approving of a draft commencement order to bring taxation into effect, will be required before such an order is actually made. In this way the House will have a further opportunity for debate before taxation commences.
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