EU warns Government over need to reform welfare system

THE Government has been warned about the need to reform the welfare system to eliminate poverty traps and broaden the tax base. The call in a European Commission report came as controversy continued over the introduction of a property tax next year as part of the EU-IMF programme.

In its seventh review of the programme, the European Commission says more needs to be done to alleviate and eliminate the problems caused by some features of the social welfare system. It called on the Irish authorities to consider all options in the preparation of the 2013 budget.

“In particular, better targeting of the social support schemes and a further broadening of the tax base would help mitigate the adverse impact of the necessary consolidation on growth and the most vulnerable,” it said.

The review recognised that the Government was making structural reforms by taking steps to expand and improve activation measures and match jobseekers and employers more efficiently, but it added: “More needs to be done to alleviate or eliminate work disincentives and unemployment traps caused by some features of Ireland’s benefits system (eg the broadly flat and open-ended unemployment benefits that do not diminish with the duration of the unemployment spell), and the recent move to decouple housing support from unemployment status should be further advanced.”

The review said that despite the substantial progress made so far the ultimate success of the EU-IMF-ECB troika programme remained subject to important risks, including continued uncertainties in the outlook for trading partners’ growth and the complexity of the ongoing financial sector reforms.

Meanwhile, it emerged yesterday that householders will be given the option of paying their property tax directly to the Revenue Commissioners or having it deducted at source if they are PAYE taxpayers, according to Government sources.

A property tax is due to be introduced next year as part of the bailout programme agreed between the Irish authorities and the troika.

The Government decided before the summer break that the property tax would be based on the market value of a house, but no decision has yet been taken on the level of the charge. There is a strong feeling in Cabinet that the tax should be set as low as possible, with the average household paying in the region of €200 to €300 a year.

The precise details of the charge and how it will apply may not be clear until the budget for 2013 is announced in December. The Revenue Commissioners, who will have the responsibility for collecting the tax, have already begun work to devise a scheme for its collection.

According to Government sources, householders will get a letter from the Revenue Commissioners in the middle of next year informing them of their obligation to pay and enclosing a self-assessment form.

People will be asked to calculate their liability on the basis of the market value for houses in their area and will also be informed of the penalties for making a false declaration.

Householders are expected to be given the option of paying the charge directly to the Revenue in a lump sum or instalments.

Those who are PAYE taxpayers are likely to be offered the choice of having the tax deducted at source but they will not be obliged to pay it in that fashion.