Dáil Éireann díospóireacht -
Wednesday, 19 Oct 1994

Vol. 446 No. 1

Written Answers. - Taxation and Social Welfare Statistics.

Liz O'Donnell

Ceist:

35 Ms O'Donnell asked the Minister for Finance if he will give details, in respect of the tax year 1994-1995, of the amounts of gross earnings a married man with spouse and four children living in a local authority house and subject to differential rent would have to earn as an employee to have a greater disposable income than as a long term unemployed person having regard to tax, PRSI, levies, FIS entitlements, the value of a medical card, cost of getting to work estimated at £610 per annum and the usual social welfare entitlements of such a family; if he has recently conducted any studies of the tax/welfare trap for long term unemployed persons; and if he will make a statement on the matter. [1600/94]

Peadar Clohessy

Ceist:

47 Mr. Clohessy asked the Minister for Finance if he will give details in respect of the tax year 1994-1995, of the amounts of gross earnings a married man with spouse and four children living in a local authority house, subject to differential rent, would have to earn as an employee to have a greater disposable income than as a long term unemployed person, having regard to tax, PRSI, levies, FIS entitlements, the value of a medical card and cost of getting to work estimated at £610 per annum, and the usual social welfare entitlements of such a family; if he has recently conducted any studies of the tax welfare trap for long term unemployed persons. [1601/94]

Desmond J. O'Malley

Ceist:

68 Mr. O'Malley asked the Minister for Finance the disposable income, namely, income net of tax, PRSI, levies, and travelling to work expenses calculated at £610 per annum adjusted for FIS, local authority differential rent and the value of a medical card, of a married employee with a spouse and four dependent children living in a local authority house earning levels of £8,000 per annum, £9,000 per annum, £10,000 per annum, £11,000 per annum, £12,000 per annum, £13,000 per annum, £14,000 per annum, £15,000 per annum and £15,000 per annum during the tax year 1994-1995 the plans, if any, he has to improve real incentives for such workers to earn more; if any studies have been carried out on the tax welfare trap for such employees; and if he will make a statement on the matter. [1599/94]

Minister for Finance (Mr. B. Ahern)

I propose to take Questions Nos. 35, 47 and 68 together.

The net income for an employed married man, with a non-working spouse and four children, earning gross incomes at £1,000 intervals between £8,000 and £15,000 per annum is given in a tabular form and is being circulated to Deputies. This table also sets out the additions to and deductions from gross income in arriving at levels of net income.

It is estimated that an unemployed married man with four children would have a net income of £7,636 per annum when account is taken of all allowances, including secondary benefits, medical card, and the costs of local authority differential rent and work-seeking. When this is compared with the information in the table it is clear that at all gross incomes between £8,000 and £15,000 this man is better off in work rather than on unemployment. Indeed the married man described would be better off in work at any level of earnings from employment when his earning and Family Income Supplement are taken into account.

The Government recognises that adjusting the tax and welfare systems to improve the operation of the labour market is an important policy objective. In recognition of the considerable complexities involved, the Government has set up a working group of experts in the tax and social welfare area to look at these issues with a view to developing a strategic approach to the closer integration of the tax and social welfare systems. The group submitted an interim report to the Minister of State at the Department of Social Welfare in December 1993. The Government is awaiting the group's final report which it expects to receive in the first half of 1995.

Net Disposable Income: Man, Wife, Four Children, 1994-95, £ Per Annum.

Gross Pay	Less	Net Pay	Plus	Net Income	Less	Net Disposable Income
Tax	PRSI	Levies	FIS	Medi-Card Value	LA Rent	Travel to Works Costs
£	£	£	£	£	£	£	£	£	£	£
8,000	—	440	—	7,560	2,860	520	10,940	1,069	610	9,261
9,000	—	495	—	8,505	2,288	520	11,313	1,124	610	9,579
10,000	240	550	—	9,210	1,664	520	11,393	1,137	610	9,646
11,000	640	605	—	9,755	1,092	520	11,367	1,133	610	9,624
12,000	1,040	660	—	10,300	468	520	11,288	1,121	610	9,557
13,000	1,440	715	292	10,553	—	—	10,553	1,088	610	8,855
14,000	1,840	770	315	11,075	—	—	11,075	1,167	610	9,298
15,000	2,240	825	337	11,598	—	—	11,598	1,245	610	9,743

Notes on Table:

1. The main factors contributing to the apparent decline in net income as gross income increases are the withdrawal rate of Family Income Supplement (60 per cent) and the operation of marginal relief for income tax (involving 40 per cent tax rate).

2. It is essential in interpreting this table that the mechanism for reviewing Family Income Supplement (FIS) is understood. FIS is renewable on a 1 2 monthly basis. Once awarded it willnot be reduced/withdrawn until the end of the period regardless of any upward movements in pay. Theref ore, gross income from employment can increase significantly during the course of a year while any adjustment of FIS will not occur until after the e d of the year. The Expert Working Group has pointed out in its interim report that FIS withdrawal does not generally occur at the same times as a gro ss pay increase.

3. The numbers of people who potentially lose disposable income as gross pay increases are small. In so far as FIS and marginal relief income tax ar e the main elements of the trap, the number of people affected by the trap is essentially a function of the numbers who both receive FIS and pay tax. The numbers of people both paying tax and receiving FIS is of the order of 1,500 to 2,000. The OECD has also concluded that this situation potential ly "applied only to a very small proportion of the employee workforce (0.75 per cent)".