GOVERNMENT OFFICIALS have been examining the option of making employees pay PRSI contributions on rental income, investments, share options and other “unearned income”.
It is under consideration as part of a new “universal social contribution” which is expected to replace PRSI, the health levy and income levy in the forthcoming budget.
Internal documents prepared for the secretary general of the Department of Social Protection show measures being studied include:
Removing the income threshold under which low-paid workers don’t have to make PRSI contributions, but are entitled to social insurance benefits. At present employees who earn less than €352 a week are exempt from making PRSI contributions.
- Ensuring employees and the self-employed pay the same rate of PRSI. At present the rate for self employed is 3 per cent, while it is 4 per cent for employees.
- Reforming employers’ PRSI contributions to reduce the cost of employing workers who earn less than €500 a week.
- Introducing a minimum earnings threshold for access to full-rate PRSI benefits.
- Removing the ceiling, above which employees pay no further PRSI contributions. This is currently set at €75,000.
- The idea of extending PRSI to “unearned income” was originally proposed by the Commission on Taxation last year.
Internal records state the Department of Social Protection would welcome such a move which would broaden the PRSI base and help tackle the deficit in funding for welfare benefits. While there may be some technical issues with implementation, officials state the feasibility of progression in the short term is being examined.
As well as making the system “fairer and more equitable”, the reforms are also aimed at addressing a shortfall in the social insurance fund, which is used to pay for PRSI and other welfare benefits. The surplus in the fund is due to run out this year. As a result, it will require exchequer funding of about €2.5 billion this year.
A group of officials from the Department of Finance, in consultation with the Department of Social Protection, the Revenue Commissioners and other departments, have been examining proposals for a new “universal social contribution”. It is due to report to Minister for Finance Brian Lenihan in the coming weeks.
The internal documents relating to this issue were released to The Irish Timesunder the Freedom of Information Act.
They do not include the views of the Department of Finance, which will be crucial to any final measures.
The records state the current lack of a minimum earnings threshold for access to full-rate PRSI benefits represents “bad value for money”.
For example, it states that a person working part-time and earning as little as €38 a week, or 4.5 hours or less per week at the minimum wage, is entitled to social insurance benefits. Officials suggest that this threshold could be raised to about €70 a week.
The Government had pledged in its programme for government in 2007 to reduce PRSI contributions from 4 per cent to 2 per cent over the lifetime of the administration. Any shortfall in the social insurance fund would be reimbursed by the exchequer. In the revised programme for government last year, there was no reference to reducing PRSI contributions but there was a pledge to abolish the PRSI ceiling in parallel with the reduction of the “temporary income levy”.
This, it said, would improve the inequity whereby “higher-paid employees pay proportionately less of their income for social insurance than lower-paid employees”.