Higher PRSI for top earners proposed in Government report

Increase in contributions needed to keep social insurance fund on sustainable footing

A new higher rate of PRSI for those earning more than €75,000 is one of a number of options contained in an unpublished Government report.

The tax strategy group, an inter-departmental committee chaired by the Department of Finance, has drawn up a series of proposals aimed at plugging funding gaps in the social insurance fund. This funding pot pays for the bulk of employees' social security costs.

Increasing the employee rate of PRSI from 4 to 5 per cent for higher earners would affect 250,000 employees and yield €60 million, according to the report.

The report points out that the programme for government does not rule out an increase in PRSI paid by employees. But it notes the commitment not to increase the marginal rate of tax.

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The report says additional PRSI income will be needed to keep the fund on a sustainable footing over the coming years.

It presents a series of proposals, including:

An across-the-board PRSI increase of up to 1 per cent for both employers and employees.

Increasing the earnings threshold at which employees can benefit from social insurance.

Lowering the threshold at which employees begin to pay PRSI.

Government Ministers examined these proposals in the run-up to the last budget but none of the measures were adopted.

A Government source familiar with the report’s proposals said the deficit for the social insurance fund has narrowed in recent years, as a result of increases in PRSI contributions, the abolition of reliefs and cuts to benefits.

This meant that policy-makers were not under pressure to follow through on any of the proposals.

The source insisted the proposals has not been “kicked to touch” in advance of next year’s election.

While the deficit in the fund has narrowed, the gap between income and expenditure is still considerable. Last year, €690 million in exchequer contributions was needed to keep it in balance.

The rising cost of pensions, which increased by more than €190 million in 2013 alone, indicates that funding pressures are likely to continue.

€1bn boost

The single biggest boost to the fund would have come from the group’s proposal for an across-the-board increase in PRSI of up to 1 per cent . This would have added €1 billion to the fund.

However, the report noted that such a move would directly affect the incentive to work for those on lower pay.

Another option was increasing the earnings threshold at which an employee could benefit from social insurance coverage.

In Ireland, social insurance applies when weekly earnings exceed €38. The equivalent threshold in the UK is €138.

The report says the threshold could be increased to €100 a week.

Carl O'Brien

Carl O'Brien

Carl O'Brien is Education Editor of The Irish Times. He was previously chief reporter and social affairs correspondent