Budget 2019: Government urged to consider increase in PRSI

Department of Employment Affairs and Social Protection says rise in PRSI could be used to pay for Ireland’s welfare regime

An increase in the PRSI rate of 4%  to 4.5%  would see someone earning €50,000 pay an additional €250 in PRSI a year, or someone earning €100,000 an additional €500 a year

An increase in the PRSI rate of 4% to 4.5% would see someone earning €50,000 pay an additional €250 in PRSI a year, or someone earning €100,000 an additional €500 a year

 

The Government should consider increasing PRSI in the budget to boost its coffers and help pay for welfare benefits, according to the Department of Employment Affairs and Social Protection. Such a move could, the department says, generate income of about €400 million for Government but would raise the tax burden of employees.

Writing to the Department of Finance ahead of October’s budget, authors from the Department of Employment Affairs and Social Protection, on behalf of the Tax Strategy Group, assert that workers in Ireland pay one of the lowest rates of social insurance contributions in the OECD.

At the same time, as is noted by the department in a separate report, Ireland may be “overly dependent” on welfare benefits. That is putting pressure on the Exchequer. The solution could be to raise the amount of social insurance workers pay.

“There is, therefore, scope to increase PRSI rates to help fund pension and other benefits,” the department argues, adding that this could be done “without unduly damaging labour competitiveness”.

Employees and those who are self-employed typically pay PRSI at a rate of 4 per cent, while employers typically contribute 10.85 per cent of employees’ salary.

An increase in the rate of 4 per cent to 4.5 per cent, for example, would see someone earning €50,000 pay an additional €250 in PRSI a year, or someone earning €100,000 an additional €500 a year. The department says that such an increase would bring in more than €400 million extra if it was applied to both employees and the self-employed, and would be borne by almost 2.5 million workers.

Minimum payment

Other options include increasing the minimum payment for Class S PRSI from €500 to €600. This would bring in about €6.6 million a year, and would hit about 75,800 people.

A final option would be to introduce a new 0.5 per cent employee rate for those with weekly earnings of between €115 and €352. This would yield €17.9 million a year and impact more than 600,000 people.

The department says that the Government could use the opportunity of merging PRSI with the universal social charge (USC) to increase the rate of PRSI as doing so would “help mitigate the impact on the disposable earnings of individuals and consumption generally”.

The proposal to increase the rate of PRSI comes as the Department of Employment Affairs and Social Protection points out the heavy burden of Ireland’s welfare regime. It suggests that Ireland “may, compared to other states, be overly dependent on monetary social transfers”.

In this respect the department argues that there could be scope to look at the level and distribution of incomes, and non-cash welfare transfers, such as the availability of social services.

The report shows that as of end-May 2018 some 2 million people were beneficiaries of a welfare payment in the State, while a further 625,300 families, accounting for 1.2 million children, also receive monthly child benefit. This means that out of a population of 4.8 million most people will receive a payment of some sort, be that the State pension, child benefit or jobseeker’s payments.

Austerity years

While welfare payments were cut in the austerity years of 2009 to 2014, payments have started to rise again since then, as evidenced by the reinstatement of part of the Christmas bonus (now 85 per cent), the €3 increase in the State pension, and the increase in child benefit.

This year 38 per cent of the Government’s budget, or €20 billion, will go to the department. Of this the greatest proportion, or 38 per cent, will go on funding pensions. And it will rise again in 2019.

The value of the State pension has increased the most from 2015-2018, up by 5.6 per cent. Most other welfare payments rose only by 2.7 per cent. Inflation rose by just 1.8 per cent over the same period. This means that in real terms pension payments are now 5.3 per cent higher than pre-recession 2008 levels. However, all other payments are 3.7 per cent lower.