Dáil Éireann Debate, Tuesday - 10 March 2015
224. Deputy Fergus O'Dowd asked the Minister for Finance the position in respect of a person (details supplied) regarding the tax status of stay-at-home parents; and if he will make a statement on the matter. [10498/15]
Amharc ar fhreagraThe position is that all those paying income tax and or USC have benefitted from the income tax changes introduced in Budget 2015 where incomes are the same as they were in 2014. Based on the details supplied by you, it would appear that the couple concerned have benefitted by approximately €13 per week from the Budget tax measures. The Deputy will be aware that a cap of €14 per week was implemented as part of the Budget package to ensure that those with incomes in excess of €70,000 did not benefit more than those with incomes at that level. However, when increases in the level of Child Benefit introduced in the Budget are taken into account, the couple concerned are benefitting by around €15 per week.
The Government targeted its Budget package at the "squeezed middle", i.e. those earning between €32,000 and €70,000 per annum. While I am sympathetic to all those facing financial difficulties, the Revenue Commissioners inform me that over 87% of tax cases will have income of €70,000 or less in 2015. Therefore, it would be difficult to categorise households which have income in excess of €70,000 as being in a "middle income" bracket.
All married one-earner couples with sufficient income are benefitting from the increase in the standard rate band by €1,000 from €41,800 to €42,800 in Budget 2015. These couples also benefit from the cuts to the higher rate of income tax in the Budget, and from a reduction in USC if their income is under €87,500. The reason married one earners don't benefit as much from the income tax cuts, as a single individual or a married two-earner couple, is because they already pay much less income tax because of the transferable standard rate band. For example, a married one earner on €55,000 who has children will pay 55% less income tax than a single individual on the same income, in 2015.
The system of individualisation, which has been in the tax code since 1999, is now integral to the tax system. When first announced, the stated purpose of individualisation was essentially, to ease the burden on single persons (65% of the work force), to take workers on the average industrial wage out of the higher rate of tax and more generally to facilitate a reduction in the numbers paying tax at the higher rate. At the same time, a home carer allowance was introduced to compensate those who chose to stay at home to care for children rather than participate in the labour market.
Individualisation was progressed to some extent in later years but never completed. The result is that we now have a hybrid system, with the standard rate band partially transferable between spouses, €9,000 being the gap between the single and married one-earner bands.
To complete or to reverse individualisation would cost in the region of €800 million. The Commission on Taxation recommended that no change be made to the current system. It concluded that the current system represents a balance between, on the one hand, acknowledging the choices families make in caring for children and, on the other, taking account of the need to encourage labour market participation.
It is important to note that that reversal of individualisation would see a second spouse entering the workforce, being liable to the marginal rate of tax on the first euro of income. This would act as a significant disincentive for those affected spouses who wish to return to work.
