(Limerick East): I propose to take Questions Nos. 9 and 37 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 £16,000 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.
The married man described would be better off in work at any level of earnings from employment when his earnings and family income supplement are taken into account. It is estimated that an unemployed married man with four children would have a net income of £7,829 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 £16,000 this man is better off in work rather than on unemployment benefit.
Improving the incentive to work is an important policy objective. In his budget speech the Minister for Finance referred to the proposal in the Government's policy agreement to move towards a basic income for children. This will involve moving from the current general reliance on child dependant allowances and the existing family income supplement and towards a child benefit supplement. This policy was reflected in the budget which, while leaving the rates of child dependant allowances and family income supplement unchanged, put more money directly into the pockets of low income families through the income tax and PRSI systems. In addition, the significant increase in child benefit of £7 per child per month will be worth a further £336 a year to this family. These changes represent a real improvement in the income of all working families with children.
The Government recognises the considerable complexities involved in adjusting the tax and welfare systems to improve the operation of the labour market. It 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 Government has also asked the group to develop proposals for an income related child benefit supplement and to complete its final report by the end of 1995. An interim report was made to the Minister of State at the Department of Social Welfare in December 1993 while research on basic income commissioned by the group was published by the ESRI in September 1994. The Government is awaiting the group's final report which it expects to receive towards the end of 1995.
Net Disposable Income: Man, Wife, Four Children, 1995/96, £ Per Annum
|
Less
|
|
Plus
|
|
Less
|
Gross Pay
|
Tax
|
PRSI
|
Levies
|
Net Pay
|
FIS
|
Medi-Card Value
|
Net Income
|
LA Rent
|
Travel To Work Costs
|
Net Disposable Income
|
£
|
£
|
£
|
£
|
£
|
£
|
£
|
£
|
£
|
£
|
£
|
8,000
|
—
|
297
|
—
|
7,703
|
2,860
|
520
|
11,083
|
1,088
|
630
|
9,365
|
9,000
|
—
|
352
|
—
|
8,648
|
2,288
|
520
|
11,456
|
1,139
|
630
|
9,687
|
10,000
|
160
|
407
|
—
|
9,433
|
1,664
|
520
|
11,617
|
1,133
|
630
|
9,854
|
11,000
|
560
|
462
|
—
|
9,978
|
1,092
|
520
|
11,590
|
1,122
|
630
|
9,838
|
12,000
|
960
|
517
|
—
|
10,522
|
468
|
520
|
11,511
|
1,110
|
630
|
9,711
|
13,000
|
1,360
|
572
|
292
|
10,776
|
—
|
—
|
10,776
|
1,122
|
630
|
9,024
|
14,000
|
1,760
|
627
|
315
|
11,298
|
—
|
—
|
11,298
|
1,200
|
630
|
9,468
|
15,000
|
2,160
|
682
|
337
|
11,821
|
—
|
—
|
11,821
|
1,279
|
630
|
9,912
|
16,000
|
2,560
|
737
|
360
|
12,343
|
—
|
—
|
12,343
|
1,357
|
630
|
10,356
|
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 12 monthly basis. When awarded it will not be reduced/withdrawn until the end of the period regardless of any upward movements in pay. Therefore, gross income from employment can increase significantly during the course of a year while any adjustment of FIS will not occur until after the end of the year. The expert working group has pointed out in its interim report that FIS withdrawal does not generally occur at the same time as a gross pay increase.
3. The number of people who potentially lose disposable income as gross pay increases are small. In so far as FIS and marginal relief income tax are 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 potentially "applied only to a very small proportion of the employee workforce (0.75 per cent)".