PRSI budget increase proposed in return for welfare safety net

 

SELF-EMPLOYED people will face a large PRSI hike in the budget in return for enjoying the safety net of social welfare benefits if the Government adopts a proposal from an expert group.

The self-employed pay social insurance contributions at 4 per cent in order to be eligible for their limited entitlements, while employers and employees together pay 14.75 per cent, enabling employees to obtain a greater range of benefits.

Minister for Social Protection Joan Burton will be advised to raise the PRSI contribution of self-employed people by the advisory group on tax and social welfare, with an increase from 4 per cent to 17.3 per cent among the options expected to be presented.

Due to the recession, large numbers of previously self-employed people have attempted to access social welfare supports for the first time only to discover their entitlements are limited compared to those available to people who have been employed by others.

Self-employed people cannot access jobseeker’s benefit and illness cover, although they get the same State contributory pension provisions as employees.

Ms Burton asked the group to explore whether providing social insurance cover for self-employed people was “technically feasible and financially sustainable”. The group based its discussions on an actuarial review of the social insurance fund carried out by KPMG.

The review found that the annual rate of social insurance contribution required from the self-employed to cover the cost of the State contributory pension would be 15 per cent. Close to 16 per cent would be necessary if jobseekers benefit was included with the State contributory pension, while the figure rose to 17.3 per cent if invalidity pension was also factored in.

Extending benefits to the self-employed would entail a significant additional cost to the exchequer, increasing the State’s spend on each scheme by some 12 per cent, according to the review. It said the self-employed and those on lower incomes got “excellent value for money” from the social insurance system, while those on higher incomes generally got back less than they paid in. In 2011, 4.6 per cent of the total financing of the social insurance fund came from the self-employed.

In May Ms Burton said any changes to the PRSI system extending the full range of social insurance benefits to self-employed people “would have significant financial implications and would have to be considered in the context of a much more significant rise in the rate of contribution payable”.

The group’s report is due to be delivered to Ms Burton soon.

It has already advised the Minister to introduce a two-tiered system of child benefit, with a flat rate and top-ups for low-income families, in a report on family income supports submitted in March. In another report to be delivered shortly, it will propose ending the practice of paying disability allowance directly to under-18s and giving a domiciliary care payment to parents or guardians instead.

The self-employed pay what is known as “class S” PRSI, whereas employees pay an “A-rated” PRSI contribution. So-called “class A” employees also pay PRSI at the rate of 4 per cent, but their employers make a contribution of 10.75 per cent, resulting in a combined payment of 14.75 per cent.

Self-employed workers can apply for means-tested jobseeker’s allowance if their business ceases or they are on a low income as a result of a downturn in demand for their services. Other benefits available to the self-employed include maternity benefit and a widow or widower’s pension.