A RADICAL overhaul of tax and social welfare, including a series of measures designed to encourage unemployed people to return to work, is recommended in a major new report.
The report of the expert group on the integration of the tax and social welfare systems, which will be launched today by the Minister for Social Welfare, Mr De Rossa, says that tax and social welfare systems should be simpler and reforms should be coordinated. Among its recommendations are the abolition of the health contribution and employment levies, which together are charged at 2.25 per cent on all but the lowest incomes.
The report, which is expected to have an important influence on the next Budget stresses people must be certain they will be identifiably better off by taking available work than they by staying unemployed.
The report, a summary of which has been seen by The Irish Times, gives priority to the impact of reform on employment and the incentive to work.
It identifies child income support, the operation of the Family Income Supplement, levels of taxation and PRSI as major contributors to poverty and the unemployment trap, which means it is often more lucrative to stay unemployed than to take work. It also notes that the withdrawal of the medical card, means testing, and rent and mortgage supplements can serve to keep people on benefit.
The chairman of the group was Mr Donal Nevin, former ICTU general secretary, and it also included a wide range of civil service and private sector experts. The group concludes that around 60,000 people, or 9.5 per cent of the unemployed, would gain little or nothing from moving into the workforce. It says that 5.8 per cent of those already in work would be almost as well off if unemployed. One of the major reasons for this has been the increase in the burden of taxation on personal incomes.
The report recommends that the health contribution and employment training levies - which together total 2.25 per cent be phased out. However, it notes that this is a "low priority" given that no one with an income below £9,750 pays either levy.
But the group rejects the idea of changing the basis of employers PRSI. The idea of moving its basis from payroll to profits was rejected. There is no recommendation on the level of employers contributions, an issue which the group says is not directly relevant to the issues it was asked to examine.
There are also differences over whether employee PRSI should be retained, with some members of the group believing that only employers' PRSI should stay in force. Mr De Rossa and his Department have argued strongly for the retention of the PRSI system, but there is a view in some Departments that the idea of abolishing employee PRSI should be further examined.
The study notes that one in six of all taxpayers now pays tax at the marginal rate of 40 per cent. It believes that the system no longer works best to create employment. It notes that it is "difficult to justify" high marginal rates of tax on low income.
Tax policies, therefore, should be aimed at abolishing the system of exemption limits which exempt those on very low incomes from paying tax. It commends that the exemption limits should eventually be abolished by increasing personal allowance faster than exemption limits.
One idea which has prior publicity an overall basic income is not recommended. The group found that the proposed basic income of £60 per adult and £17.40 per child would require a tax rate on all earned income of 68 per cent. This could have a negative impact on employment, it notes.
The group also rejects a full basic income for children. It says that some form of child income support should be included in any package of reforms.
