Written Answers. - Taxation Study.
Michael McDowell
Ceist:
64
Mr. M. McDowell
asked the
Minister for Enterprise and Employment
if he has considered the implications for enterprise and employment in Ireland of the conclusions of the comparative study commissioned by IBEC entitled Taxes on Labour in Ireland and the United Kingdom; and if he will make a statement on the matter.
[2215/94]
There is much in this study entitled Taxes on Labour in Ireland and the United Kingdom which I can identify with. The study examines the principle differences between the Irish and British systems for taxing labour. The broad thrust of the summary and conclusions of the report is that economic policy in respect of the exchange rate, pay and taxation must take cognisance of the complicated web of trading relations with Britain.
In particular, I would agree with the report's conclusion that competitiveness is the key to raising out put and expanding employment in the Irish economy and this is an issue at the top of my priorities. I would also identify with the emphasis which the authors of the report attach to trading relations with Britain and the consequent importance of the exchange rate with Sterling. Maintaining the competitiveness of pay levels in Ireland with those in the United Kingdom is an important guideline for pay policy. TheProgramme for Competitiveness and Work provides for moderate levels of pay increases for this country up until 1997, which should help to secure the objective of maintaining wage competitiveness.
Furthermore, the analysis in the report found that the direct tax burden in Ireland is significantly higher in the case of single people and also for married couples where both spouses are working. The report concludes that to re-integrate larger numbers of the unemployed back into the labour market, it is desirable that the taxation burden on earned income be reduced. This Government is aware that the share of revenues deriving from the taxation of earned income in Ireland has increased substantially over the past two decades. It is indisputable that our income tax regime bears heavily on modest incomes. The 48 per cent tax rate comes into play at a relatively low threshold in the case of single people.
Reform of the taxation system to achieve a reduction in the tax wedge has been a priority of this Government. It is obvious that substantial costs are involved in making any significant improvement in the income tax and PRSI codes. Nevertheless, in this year's budget, this Government addressed this issue by making considerable concessions to low paid employees. An exemption from both the 1.25 per cent health levy and the 1 per cent employment and training levy for those in receipt of incomes not greater than £9,000 a year was introduced in the budget. Also, the Government introduced 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 provisions included in the 1994 budget as I have outlined were intended to address in part the overall imbalance between UK and Irish labour costs. Accordingly, I intend keeping under constant review those factors which contribute to the imbalance between UK and Irish labour costs including the differentials between UK and Irish income tax and PRSI structures.
This Government is committed to continuing progress along the road of tax reform and improving competitiveness. I would, however, have to caution against an exaggerated view of what tax reform on its own can achieve in resolving our economic problems. Tax reform measures can, at best, be only a part of a wider response to the employment challenge.
