Major hikes in PRSI proposed for workers and bosses

The Government has been urged to introduce significant increases in PRSI payments for employees, employers and the self-employed from 2023. The call comes in pre-budget papers prepared by senior public servants.

Increases of 1.5 percentage points in most PRSI rates over a period of years are needed to close the emerging gap in the social insurance fund, which has been hit hard by the pandemic, according to the tax strategy papers in which civil servants outline options for the forthcoming budget.

Under the proposals, the 4 per cent PRSI rate paid by most employees would increase to 4.5 per cent in 2023 and increase by a further half point in both 2025 and 2027 to reach 5.5 per cent. The charge would also kick in at lower earnings levels than at present – at weekly earnings equivalent to about €13,000 annually, compared with €18,300 now.

Previous tax-strategy papers have highlighted that self-employed people get most of the benefits from the social insurance system but pay PRSI at a much lower rate than the combined employer/employee contribution for those in employment. The paper recommends a major increase for this group from 2023 on, seeing the PRSI rate they pay increasing from 4 per cent now to 5.5 per cent in 2023 and by 1.5 percentage points each year to 2027 as well as a final percentage point rise in 2028 to reach a rate of 12.55 per cent.

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Employers would also face higher payments. They currently pay PRSI at 8.8 per cent on earnings under €398 per week and at 11.05 per cent for amounts above that. The papers call for this to rise to a single rate of 12.55 per cent by 2027, again with increases starting in 2023.

Deficit

The social insurance fund has slumped into deficit due to the pressures of the pandemic, which has led to increasing claims and less money being paid in. This has turned a €3.9 billion surplus at the end of 2019 into a projected deficit of €3.8 billion this year.

The extra revenue from the proposed rate increases would amount to €3.6 billion annually by 2027.

The report also calls for a range of other reforms , most of which would involve a higher PRSI yield.

It says that the Government could more than double the weekly earnings threshold for employees accessing social insurance coverage to help replenish the State fund post-Covid and account for demographic change.

The paper argues that the weekly earnings threshold – the minimum someone must earn before accessing benefits under the social insurance system – should rise from €38 per week to €96.15 per week, or €5,000 per year.

The measure, if approved, would in fact cost the exchequer about €7.3 million initially – as employers would no longer have to make contributions for people earning below the new, higher threshold. But the department believes this would in time be offset by expenditure savings on short-term schemes as those earning below the new threshold could not establish entitlement to those benefits.

The proposed threshold is the weekly equivalent of the level paid by self-employed people to access social insurance cover.

It one of several measures the department says “will improve the adequacy, sustainability and equality of the social insurance system as well as the future viability of the [social insurance fund].”

Flat-rate charge

It suggests introducing a flat-rate annual voluntary contribution charge for both former employees and self-employed contributors of €600 from 2023, with the rate increasing incrementally to €750 and €1,000 between 2025 and 2027.

These are optional payments open to people under the age of 66 to maintain their State pension entitlements, even when they are not compulsorily insured. They secure access to the same level of benefits but are not charged at the same rates for employed and self-employed people.

Changing the rule would ultimately result in a yield of €1.8 billion for the exchequer, according to the paper.

It also suggests reducing the level below which employees are not liable to pay social insurance from €352 to €250 per week. This would yield additional income of €62 million per annum, and affect about 243,400 workers who currently earning between €250 and €352 per week.

A further 195,800 contributors currently earning between €352 and €424 a week would, to some extent, also be affected.