Bernard Allen
Ceist:105 Mr. Allen asked the Minister for Finance his views on the conclusion of the National Economic and Social Forum's report that the higher paid had benefited most from recent tax reforms. [1188/98]
Written Answers. - Tax Reform.
I would point out that the NESF Report No. 15, to which the Deputy is referring, accepted that there had been an increased emphasis in recent budgets on tax reform measures for those on low pay, before referring to the conclusion that those on higher pay have benefited most in absolute terms.
Measuring budget gains in absolute terms for people at different income levels can be slightly misleading and is not entirely appropriate, on its own, for comparison purposes. The general tax changes introduced in budgets, which normally include changes to the basic personal allowances, bands and rates, will of their nature provide higher nominal gains to taxpayers on higher incomes than to those on lower incomes, whose exposure to taxation is more limited. However, when such gains are expressed as a proportion of net income or as a percentage of tax liability, people on lower incomes usually achieve the higher percentage changes.
Furthermore, when comparing gains from budgetary measures account should also be taken of tax measures, outside the basic tax packages, which can restrict tax reliefs used mainly by people on higher incomes. Such measures in recent years include, especially the standard rating of mortgage interest and medical insurance reliefs, and the measures I introduced in the recent budget, for example, restrictions on the use of BES, capital allowances and dividend tax credits. Such measures increase the tax burden of those availing of such reliefs, mainly people on higher incomes. However, as they are not availed of by all taxpayers on such incomes they are not reflected in the usual comparative tables.
With regard to assisting certain less well off groups, I announced additional measures in the recent budget which are specifically aimed at those on lower incomes and the unemployed. To assist the long-term unemployed back to work I introduced a special tax allowance in the first year of employment of £3,000 plus £1,000 for each child for persons unemployed for one year or more who take up a job. The allowance will be tapered down over a three year period. I also announced changes in the operation of the family income supplement — FIS — to a net income basis which will be of significant benefit to employees with families on low incomes.