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Dáil Éireann díospóireacht -
Tuesday, 12 Mar 1996

Vol. 462 No. 8

Written Answers. - PAYE Reform.

Godfrey Timmins

Ceist:

19 Mr. Timmins asked the Minister for Finance the proposals, if any, he has for the reform of taxation especially in the PAYE sector, in view of the disincentive caused by current rates in having recipients of long-term unemployment benefits take up full time employment; and if he will make a statement on the matter. [5593/96]

It is the Government's policy to continue, within responsible budgetary parameters, the process of tax reform as an important element in overall employment strategy. The programme, A Government of Renewal states that the Government will accelerate the reform of the tax system, in particular to relieve the tax and PRSI burden on those with low incomes and especially those with families. Tax reform will favour the incentive to work, aim to reduce the tax wedge, and encourage enterprise development and growth.

In line with this policy, I have, in my two budgets, made significant increases in the exemption limits and personal allowances, and considerably widened the standard bands. I have also introduced a new PRSI-free allowance of £80 per week for most employees. Furthermore, the lower rate of employers' PRSI contributions has been reduced from 9 per cent to 8.5 per cent and the income threshold applying to it increased from £173 per week to £250 per week (from £9,000 to £13,000 per annum). These measures will increase take-home pay, especially in the case of lower paid workers, thereby making employment more attractive and will continue the progress being made in reducing both the employees' average tax burden and the overall tax wedge.

In addition this year's budget also contained a number of provisions designed specifically to ease the transition from unemployment to work. These measures include increases in the income limits applying to the family income supplement (FIS), the retention of child dependant allowances by the long-term unemployed for 13 weeks on taking up employment, and the retention of the medical card by the long-term unemployed for three years on returning to work. The retention of child dependant allowances is specifically designed to improve the take-up of FIS, thereby building a bridge between unemployment and employment.
The impact of the tax and social welfare systems on the incentive to work is of concern to the Government. In view of the complexity of the issues involved, an expert working group on the integration of the tax and social welfare systems was established in 1993. The group has already made two interim reports to the Government and most of the recommendations have been implemented. The group will shortly produce its final report.
It is planned to make further progress in the 1997 budget towards reducing the tax and PRSI burden on those on low incomes and to improve the incentive to work by pursuing the type of measures adopted in the last two budgets. In this regard the Government will, of course, have regard to the recommendations of the expert working group.
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