Vol. 442 No. 2
8 Miss Harney asked the Minister for Enterprise and Employment the assessment, if any, that has been made of the impact on Irish employers of the budgetary adjustment of employer's PRSI in relation to costs, competitiveness and job creation.
108 Miss Quill asked the Minister for Enterprise and Employment the assessment, if any, that has been made by the Government of the impact on Irish employers of the budgetary adjustment on employer's PRSI in respect of cost, competitiveness and job creation.
I propose to take Questions Nos. 8 and 108 together.
A detailed study of the impact of employers' PRSI on low-paid labour intensive sectors of manufacturing industry was undertaken by an inter-departmental group in late 1993 which concluded that a reduction in the overall burden of PRSI would help maintain existing employment and also assist in the creation of new jobs.
Arising out of the recommendations of this group, the Government decided to introduce a tiered system of employers' PRSI with a reduced rate of 9 per cent applying to incomes up to £173 per week equivalent to £9,000 per annum. The cost impact of this adjustment will be very favourable in the case of firms employing significant numbers of employees in that income category. Such firms will benefit from a 26 per cent reduction in employers' PRSI for all workers earning less than £173 per week. In the case of low-paid labour intensive industries such as clothing, footwear and leather, textiles, timber and furniture, this reduced rate will provide a significant boost to the competitiveness of these sectors, particularly vis-á-vis the UK.
To help fund this concessionary rate and the normal indexation of payments from the social insurance fund, the budgetary adjustment to PRSI also involved an increase in the ceiling from £21,200 per annum to the equivalent of £25,800 per annum.
It is the view of my Department that the reduction in employers' PRSI will have a positive impact on job maintenance in the low-paid labour intensive sectors. It will also act as a means of encouraging employment opportunities for the young and low-paid.
Will the Minister accept that while the reduction at one level is welcome, it should not be accompanied by an increase at the other end? That is not the way to tackle labour costs unless it is Government policy to create a low skill, low pay economy. The increase to £25,000 in employers' PRSI had already led to hefty additional payroll costs that will impact on the competitiveness of a number of companies, particularly those with big export markets. That will, inevitably, be a powerful disincentive to job creation.
The Deputy should proceed by way of supplementary question.
Has the Minister studied the impact of this increase on chemical and pharmaceutical companies, co-operatives and companies with a high export content——
The Deputy is imparting a lot of information.
——and a labour force with a high content of skilled graduates?
The reduction in employers' PRSI and the introduction of a two-tiered system followed numerous representations by employers particularly in the areas of low skill and low pay which were highly exposed to negative competition, particularly from the United Kingdom. We need a regime that will ensure that maintenance of such jobs until such time as we can move the skills base and the remuneration level up.
The full cost of the reduction in employers' PRSI has not been transferred to the other end of the equation. The Exchequer absorbed quite an amount of that cost. There would, anyway, have been an increase in the ceiling by way of indexation, although nothing like what was added. I have received representations from some employers to the effect that it has had an adverse effect on their labour cost base. However, the overall cost of output in manufacturing companies with highly paid and highly skilled workers tends to be less significant than in companies where the labour cost of low paid workers is much more critical to the profit level. In general — and there will be exceptions — industry would be capable of carrying that extra cost, albeit with a certain degree of pain.
Guinness said that this increase in the ceiling for employers' PRSI would add £1 million a year to their payroll costs. Has the Minister done an analysis and could it lead to an adjustment in the next budget?
Many things add to the costs of a company in any economy. The Deputy referred not just to Guinness but to the chemical industry and the co-operatives. The ratio of labour costs to overall production costs and, consequently, to the profit levels of those companies is much lower than in low labour industries like the textile and garment industry where the profit margin is small and where the component cost of labour as a percentage of the total amount of capital or operating costs is much higher. There is greater capacity within the chemical and other industries to absorb that cost. We will monitor its adverse effects, but many of the companies to which the Deputy referred have been reporting fairly healthy profit balances and, in the light of the present upturn in the economy, are looking forward to prosperous balance sheets in the future. Therefore, they can absorb, if not all of it, at least a substantial part of the cost, but we will keep the matter under review.
Will the Minister tell the House why the Government appears to be attached to the figure of £173? That was the cut-off point for the infamous 1 per cent levy, but it is far from the average industrial wage. Does the Minister not believe that could have an impact on the maintenance of low pay in some of the industries to which he referred? Has he put in place mechanisms to monitor or assess whether a two-tiered system of PRSI will contribute to job creation in those areas?
The figure of £9,000 was arrived at following negotiation with the Department of Finance and, as the Deputy is aware, the officials of that Department are imbued with a wisdom that none of us fully understands. In reply to his second question, the emphasis on reduction of employer costs was in many cases driven by the need to maintain existing employment, particularly employment in a negative competitive position relative to the United Kingdom. In Wales labour costs in the sectors to which we are referring are in some cases 35 per cent lower than equivalent costs here. That is a matter of concern. We are in close contact with IBEC at national level and the Department of Social Welfare to monitor the effects of this measure.
There are a number of arguments against introducing a tiered system of PRSI because of the difficulties associated with creating traps and gaps. Its operation will have to be monitored over time. Having regard to the difficulties experienced in the low paid labour intensive sectors during the currency crisis in the early part of 1993 there was an obvious need to protect that employment base. That was the driving motivation behind the proposal to reduce employers' PRSI.
Is the Minister aware that following the introduction of the tiered system the lower end of PRSI is 100 per cent higher and the top end is 20 per cent higher than that of the UK? Will he agree that if competitiveness with the UK is a major factor for vulnerable industries a pathetic effort is being made to deal with it? Is the Minister aware that the Taoiseach refused to endorse the EU proposal that national governments should reduce the burden of taxes on employment by 1 to 2 per cent of GDP? Evidence from the EU is that this could reduce unemployment by 4 per cent. Will he agree that this area of policy is poorly addressed by the Government?
I do not agree that the matter is poorly addressed by the Government. The two-tiered system of PRSI was introduced specifically at the request of business, but it has not met all the requirements. That is not possible because of their diversity. However, at the time it was considered essential to maintain employment.
I am aware that relative to the United Kingdom our PRSI costs across the entire spectrum are higher because our tax base and the amount of money we spend as a Government within the economy are different from the United Kingdom, but that is a wider and deeper issue. We are examining our relative competitiveness in the context of the United Kingdom which is a major market for many of our companies, particularly indigenous ones. We are also examining other sectors because at least 50 per cent of our exports go to other countries where employers PRSI and social insurance costs are infinitely higher than ours.
I want to refer to a question which was asked by another Member to which the Minister did not respond in detail. What mechanisms are in place to monitor the effectiveness of this measure, particularly in regard to protecting jobs? Many jobs have been lost in my constituency and I intend carrying out a study on those losses. What systems are in place with a view to modifying, developing or changing this measure?
As part of the commitment in the Programme for Government we have established in the Department a competitiveness and employment protection unit. I have given details of the work carried out by that unit in reply to a question tabled by Deputy John Bruton. That unit is the first port of call for companies experiencing difficulties in maintaining employment or economic viability and it is in contact with industries throughout the country. I welcome this opportunity to highlight the existence of the unit.
We receive notification from Forbairt on a regular basis about industries which have received financial or technical assistance from the IDA and are experiencing employment difficulties. The reasons for those difficulties are cited in weekly and monthly reports which are submitted to us by Forbairt. A group was also established to liaise with the Department of Social Welfare.
