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Tax Code

Dáil Éireann Debate, Thursday - 3 October 2013

Thursday, 3 October 2013

Ceisteanna (5)

Joan Collins

Ceist:

5. Deputy Joan Collins asked the Minister for Finance his views on whether the tax on maternity benefit is a retrospective tax; and if he will review this tax in budget 2014. [41737/13]

Amharc ar fhreagra

Freagraí ó Béal (8 píosaí cainte) (Ceist ar Finance)

It is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. In line with this principle, the majority of social welfare payments are reckonable as income for tax purposes. These include long-term payments such as disablement benefit, the State pension, widows', invalidity and blind pensions, carer's allowance and the one parent family payment, as well as short-term benefits such as jobseeker's benefit. Treating these payments as income for tax purposes is essentially a matter of equity.

As a result of maternity benefit payments becoming liable to income tax for all claimants, from 1 July 2013 a number of possible tax outcomes could arise. An individual may pay no income tax on the maternity benefit payment as her tax credits will be sufficient to reduce her tax liability to zero or an individual may pay income tax on some or all of the maternity benefit payment solely at the standard rate. In some cases, an individual may pay income tax at the standard rate on a portion of the maternity benefit and the higher rate on the balance of the maternity benefit payment, while in others an individual may pay income tax on all of the maternity benefit payment at the higher rate.

I am aware that some employers do not pay a top-up payment to their employees while they are on maternity leave. However, in such circumstances many mothers will not be subject to income tax on the maternity benefit payments as their personal credits will ensure no tax arises on the social welfare income. Of course, the extent, if any, to which taxation actually arises in a given case depends on the total level of income of the individual or couple concerned in the relevant tax year or years. Maternity benefit payments will remain exempt from the universal social charge and PRSI. I do not believe taxation of maternity benefit is a retrospective tax for a number of reasons. In budget 2013 I announced that maternity benefit paid by the Department of Social Protection would become taxable from 1 July 2013. The underpinning legislation for this measure was contained in the Finance Act 2013 which was passed by the Oireachtas and signed in to law on 27 March 2013. Maternity benefit payments only became liable to income tax for all claimants from 1 July 2013.

As the Deputy will appreciate, I receive numerous requests for the introduction of new tax reliefs and the extension of existing ones, but I must be mindful of the public finances and the many demands on the Exchequer, given the significant budgetary constraints.

I thank the Minister, but his reply is the standard one we have heard since the introduction of this tax on maternity benefit. It is a retrospective tax in that the Minister is taking money from people's pockets when they most need it. If those women still had that money, they would be able to spend it in the economy, buying what they need for their child, but the Minister has just taken it out of the economy. A young woman contacted me recently about this matter. The tax came into force in July and people are only starting to feel the effects of it now. The young woman told me that her wages had dropped from €2,452 to €2,102, which means that €350 is being taken out of her wages every month, or almost €90 per week. Effectively, the maternity benefit payment has been reduced from €260 per week to approximately €170.

The Commission on Taxation has stated maternity benefit should not be taxed and I agree. Why the maternity benefit of women who are expecting children is taxed when the Government will not touch corporation tax is beyond me.

As I said, it is a question of equity. Disablement benefit is taxed, as are State pensions, widows' pensions, invalidity and blind pensions, carer's allowance and the one parent family payment. If one has an income from work and a benefit in excess from social welfare, the general principle is that it is taxed. Maternity benefit was an exception and, in some circumstances, this led to a situation where women on pregnancy leave had a higher income than if they had stayed at work.

The women were pregnant. They had to leave work.

In the times we are in and in trying to fix the mess Fianna Fáil left behind, one is left with bad choices.

One is measuring one choice against another. When the Deputy’s neighbours do their shopping, they pay VAT and excise. Why should they be the people who carry the burden when other people at work on an extra payment should not pay tax? I know the Deputy has an argument, but there are as many arguments on my side as there are on the Deputy’s.

I do not know about that.

(Interruptions).

Taking maternity leave is not a choice but a need. It is about preparing for the birth and, afterwards, adjusting to having a new child. The Minister expected to make €14 million a year by taxing maternity. It is a bad choice and there were no calls for such a tax. It is a cut for a woman who had a child three years ago and will have another this year. The Minister might as well have reduced maternity benefit payments, as it is six of one and half a dozen of another. He should consider reversing this decision in the forthcoming budget. It would be a significant relief for women in receipt of this payment and would mean they could spend money on their children in the economy. This is what maternity benefit was given for in the first place.

We will consider any advice, particularly from elected Members. To be frank about it, it is unlikely I will reverse a decision made just 12 months ago.

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