Written Answers. - Net Disposable Income.

Michael McDowell

Ceist:

52 Mr. M. McDowell asked the Minister for Finance the estimated difference in net disposable income after tax and PRSI of a family entitled to receive a family income supplement with one parent employed, one parent in the home and four children under the age of 12, living in a local authority home with differential rent taking into account the value of any medical card entitlement and assuming a cost of getting to work for the earning parent of £12 per week where the earning parent annually earns £8,000, £9,000, £10,000, £11,000, £12,000, £13,000, £14,000 and £15,000; and if he will make a statement on the matter. [16771/96]

Liz O'Donnell

Ceist:

59 Ms O'Donnell asked the Minister for Finance what annual wage earned by one adult, the net disposable income of a family of two adults and four children under the age of 12, taking into account the value of a medical card, the effect of differential rent on a local authority home at £40 per week, the cost of getting to work estimated at £10 per week and an entitlement to a family income supplement, will exceed net disposable income based on standard social welfare entitlement, for a family with no employed parent; and if he will make a statement on the matter. [16774/96]

Desmond J. O'Malley

Ceist:

65 Mr. O'Malley asked the Minister for Finance the estimated difference in net disposable income after tax and PRSI of a family entitled to receive a family income supplement with one parent employed, one parent in the home and four children under the age of 12, living in a local authority home with differential rent taking into account the value of any medical card entitlement and assuming a cost of getting to work for the earning parent of £12 per week where the earning parent annually earns £8,000, £9,000, £10,000, £11,000, £12,000, £13,000, £14,000 and £15,000; and if he will make a statement on the matter. [16772/96]

Desmond J. O'Malley

Ceist:

72 Mr. O'Malley asked the Minister for Finance what annual wage earned by one adult, the net disposable income of a family of two adults and four children under the age of 12, taking into account the value of a medical card, the effect of differential rent on a local authority home at £40 per week, the cost of getting to work estimated at £10 per week and an entitlement to a family income supplement, will exceed net disposable income based on standard social welfare entitlement, for a family with no employed parent; and if he will make a statement on the matter. [16773/96]

I propose to take Questions Nos. 52, 59, 65 and 72 together. The net income for an employed person, with a non-working spouse and four children, earning gross incomes at £1,000 intervals between £8,000 and £15,000 per annum is shown in table A which follows. This table also sets out the additions to and deductions from gross income arising in arriving at levels of net income. It is estimated that a family with no employed parent and four children would have a net income of £8,068 per annum when account it 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 family's circumstances are better with one parent in employment.

As regards Deputy O'Malley's second question, table B sets out the position of an employed person, with a non-working spouse and four children earning gross incomes at £1,000 intervals between £6,000 and £15,000 per annum, inclusive of the additions to and deductions from gross income — and, in particular, the requirement of taking into account the effect of differential rent on a local authority home at £40 per week and the cost of getting to work at £10 per week — in arriving at levels of net income. It should be noted that the differential rent of £40 per week is not representative of the present position with regard to such rents at these income levels. However, even taking account of the effect of differential rent on a local authority home at a rate of £40 per week, the position is that, at all incomes between £6,000 and £15,000, a family of the type described is better off with one parent in employment.

It can be seen from table A that the employed person in question faces a reduction in net income as gross earnings increase at certain levels of income. This phenomenon is known as the poverty trap which is a result of the impact of the interaction of aspects of the taxation and welfare codes as they have evolved over a long period. The number of people who potentially lose disposable income as gross pay increases is small. While not attempting to minimise the problem for those affected, it is necessary to put it into overall perspective and not to seek to represent as a general problem what is, in fact, an unusual and limited situation. It was to address the various complexities involved in this whole area that the Expert Group on the Integration of Tax and Social Welfare Systems was established. The group has concluded a detailed examination of the whole question of poverty and unemployment traps and its report was published last June. The group's report is being examined carefully. I do not expect a simple solution to the poverty trap problem; indeed, I know there is not one. However, I am ever mindful of the necessity to minimise any adverse impact which future changes to the tax and social welfare systems have on the more vulnerable in the labour force and I can assure this House that steps will continue to be taken to remove such consequences.
TABLE A
Net Disposable Income: Single Earner Couple, Four Children

Plus

Net income

Less

Net Disposable Income

Gross Pay

Tax

PRSI

Levies

Net Pay

FIS FIS

Medical Medical card value

LA Rent

Travel to Work costs

£

£

£

£

£

£

£

£

£

£

£

8,000

0

211

0

7,789

3,156

576

10,945

1,148

600

9,197

9,000

0

266

0

8,734

2,556

576

11,290

1,199

600

9,419

10,000

0

321

225

9,454

1,956

0

11,410

1,217

600

9,593

11,000

400

376

248

9,976

1,356

0

11,332

1,206

600

9,526

12,000

800

431

270

10,499

756

0

11,255

1,194

600

9,461

13,000

1,200

486

293

11,021

260

0

11,281

1,198

600

9,483

14,000

1,600

541

315

11,544

0

0

11,544

1,238

600

9,706

15,000

2,000

596

338

12,066

0

0

12,066

1,316

600

10,150

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 a 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. Once 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.
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 are the main elements of the poverty trap, the number of people affected is essentially a function of the numbers who both receive FIS and pay tax. It is estimated that the numbers both paying tax and receiving FIS are of the order of 1,500 to 2,000. The OECD has also concluded that this situation potentially "applied to a very small proportion of the employee workforce (0.75 per cent)".
4. Finally, the entitlement to a medical card applies up to a gross income of £9,646 in the case of a married couple with four children. However, persons who have been unemployed for at least one year will retain their medical cards for three years after entering employment.
TABLE B
Net Disposable Income: Single Earner Couple, Four Children

Plus

Net income

Less

Net Disposable Income

Gross Pay

Tax

PRSI

Levies

Net Pay

FIS FIS

Medical Medical card value

LA Rent

Travel to Work costs

£

£

£

£

£

£

£

£

£

£

£

6,000

0

101

0

5,899

4,356

576

10,831

2,080

500

8,251

7,000

0

156

0

6,844

3,756

576

11,176

2,080

500

8,596

8,000

0

211

0

7,789

3,156

576

11,521

2,080

500

8,941

9,000

0

266

0

8,734

2,556

576

11,866

2,080

500

9,286

10,000

0

321

225

9,454

1,956

0

11,410

2,080

500

8,830

11,000

400

376

248

9,976

1,356

0

11,332

2,080

500

8,752

12,000

800

431

270

10,499

756

0

11,255

2,080

500

8,675

13,000

1,200

486

293

11,021

260

0

11,281

2,080

500

8,701

14,000

1,600

541

315

11,544

0

0

11,544

2,080

500

8,964

15,000

2,000

596

338

12,066

0

0

12,066

2,080

500

9,486

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 a 40 per cent tax rate) as well as the effect of differential rent on a local authority home at £40 per week.
2. It should be noted that the differential rent of £40 per week as stated in the question is not a representative figure at the income levels indicated. The actual rent payable at the various levels of earnings is set out at Table A above.
3. 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. Once 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.
4. 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 are the main elements of the poverty trap, the number of people affected is essentially a function of the numbers who both receive FIS and pay tax. It is estimated that the numbers both paying tax and receiving FIS are of the order of 1,500 to 2,000. The OECD has also concluded that this situation potentially "applied to a very small proportion of the employee work force (0.75 per cent)".
5. Finally, the entitlement to a medical card applies up to a gross income of £9,646 in the case of a married couple with four children. However, it should be noted that persons who have been unemployed for at least one year will retain their medical cards for three years after entering employment.
Computation of the £8,068 referred to in the Reply

1. Long Term Unemployment Assistance

£

Personal

64.50

Adult

38.50

Children

52.80

155.80

Plus

2. Secondary Benefits

Medical Card

11.08

Butter Vouchers

1.25

Christmas Bonus

2.10

Free Clothing

3.31

Free Fuel

2.50

20.87

Less

3.

LA Rent

13.87

Work Search

7.00

Net Income

155.17

£155.17 × 52 weeks=£8,068.84