Ceisteanna—Questions. Oral Answers (Resumed). - Tax Burden.

Charlie McCreevy


10 Mr. McCreevy asked the Minister for Finance the plans, if any, he has to ensure that lower and middle income earners are not subjected to a marginal rate of tax of 56 per cent and that the low paid, particularly those with families, have their tax burden removed or, at the least, reduced. [8481/96]

Liz O'Donnell


19 Ms O'Donnell asked the Minister for Finance the gross wage at which single workers pay 48 per cent tax and 7.75 per cent PRSI on marginal earnings; the proposals, if any, he has to reduce the tax burden on such single workers; and if he will make a statement on the matter. [8584/96]

Liz O'Donnell


35 Ms O'Donnell asked the Minister for Finance the total amount of tax and employee PRSI payable by single workers earning the average industrial wage; the total percentage of income this amount represents; whether his attention has been drawn to the disincentive effects of employment tax at that level; and if he will make a statement on the matter. [8586/96]

I propose to take Questions Nos. 10, 19 and 35 together.

The tax burden on people in employment is of particular concern to the Government. Consequently in my two budgets I have focused relief towards lowering the tax burden, particularly of those in low paid employment. This has been achieved through significant improvements in the income tax and PRSI areas. In the 1995 budget, personal allowances were increased by £150 for single persons and £300 for married couples, and the standard band was widened by £700 single and £1,400 married, respectively. The general income exemption limits, below which no income tax is payable, were increased by £100 single and £200 married. Further significant gains accrued to those in employment, especially the low paid, from the introduction of the allowance of £50 per week for full rate PRSI contributors.

These measures were underpinned in this year's budget by further increasing the personal allowances by £150 to £2,650 for a single person, and by £300 to £5,300 for a married couple. The general exemption limits were increased by £200 to £3,900 for a single person, and by £400 to £7,800 for a married couple. The standard band was widened by £500 to £9,400 for a single person and by £1,000 to £18,800 for a married couple. In addition the PRSI-free allowance was increased to £80 per week.

The increase in the PRSI-free allowance to £80 per week full rate contribu-disregarded when calculating their PRSI contribution. The measure, on its own, is worth up to £228.80 per annum, or £4.40 per week, for such workers. When combined with the non-renewal of the PRSI income tax allowance, it still results in significant gains, especially for those on low pay. For example, low income workers exempted from income tax or taxed under the marginal relief system enjoy the full relief of £228.80 per annum, as they did not benefit from the PRSI income tax allowance in the first instance. The net gains can be up to £152 per annum, or just under £3 per week, for those on the standard income tax rate, and up to £92 per annum for those on the top rate.

As regards the point at which a single industrial worker will begin paying tax at the 48 per cent rate, in the current tax year the figure is £12,850. A single worker on the average industrial wage, which is estimated at around £14,800 for 1996, and having only the basic personal allowances, will pay £3,474 in income tax, £585 in PRSI, and £333 in levies in the current tax year. This gives total deductions of £4,392, representing 29.7 per cent of gross income.

The improvements I introduced in my two budgets mean that a single full rate PRSI contributor will not be liable to pay tax at the higher rate, as I have indicated, until their gross income exceeds £12,850 this year, as compared to £11,636 in 1994-95, and a married couple, one earner, until their earnings are in excess of £24,900 this year, as compared to £22,186 in 1994-95. This represents increases in the thresholds for the higher rate of 10.4 per cent and 12.2 per cent respectively, which are more than twice the expected rate of inflation. Furthermore, the total tax and PRSI take for a single worker on the average industrial wage has fallen by slightly over 1.5 percentage points of gross income as compared to two years ago.

The improvements made over the last two budgets are significant. The measures introduced have been aimed primarily towards reducing the average tax take rather than at cutting tax rates. Clearly, however, further progress is needed in reducing the tax and PRSI burden, thereby improving the competitiveness of the economy. There are, of course, different views as to the form further reductions in taxation should take, and the groups towards whom relief should be targeted. I hope, within responsible budgetary parameters, to consolidate and build on the type of measures introduced over the past two years in the 1997 budget.

As recently as this morning, the Minister of State at the Department of Enterprise and Employment admitted, in response to a question on radio, that the lower paid pay inordinately higher rates of tax.

Notwithstanding the Minister's reply outlining the virtuous performance of the last two budgets, will he agree that the general body of taxpayers has been singularly unimpressed and that this is one of the reasons for the difficulties in getting any form of realistic negotiations for another national agreement? Will the Minister agree that there is an opportunity to do something now regarding tax reductions at a time of high economic growth? Given the restrictions which will be imposed as a result of European Monetary Union in a few years' time, such as the reduction in EU Structural Funds, an opportunity has been wasted in the past two years to do something positive about tax reform and tax reductions for the majority of workers.

I do not accept the statements by the Deputy. The last time taxpayers were considerably impressed was in mid-summer 1977. They have been paying the price since. While there has been an improvement in workers' take home pay, it is not as great as I or anyone else would wish. I do not believe a Minister for Finance will ever be able to say taxpayers are satisfied with the amount of tax they pay.

In regard to the Deputy's assertion that there were difficulties in negotiating the Programme for Competitiveness and Work, he should not confuse the commentaries of one or two individuals with the prospect of a new agreement. In so far as it affects the public sector, the agreement has approximately 14 months to run, until the end of June 1997. The private sector component of the Programme for Competitiveness and Work expires at the end of December 1996. Preliminary work is ongoing on the parameters of a new agreement and it is inevitable that various comments will be made on the positions adopted in the run up to such discussions. I am positively disposed to entering constructive negotiations for a new Programme for Competitiveness and Work, should that be the wish of the social partners. However, while there are some difficulties, the Government must be satisfied that the agreement meets the requirements of all sectors of the community. We are not prepared to accept an agreement at any price.