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McGrath calls on Government to reverse decision to penalise employees as a result of shortened tax year
Fine Gael deputy finance spokesman, Paul McGrath, has today (February 28, 2001) called on the Government to reverse a decision to penalise employees who would normally enjoy a PRSI holiday, as a result of the shortened tax year this year.
"Section 8 of the Social Welfare Bill is increasing the PRSI ceiling for employees from £26,500 to £28,250, which is welcome. The situation to date for employees with incomes over those thresholds was that they got a PRSI holiday for part of the tax year when their income was in excess of the PRSI ceiling. In the last tax year 1999/2000, 340,000 employees availed of this PRSI holiday with an average benefit of £300 each. Since the 2001 tax year will run from April to December it is a shortened tax year of 38 weeks. The net effect of this is that allowances such as personal and PAYE allowances are allowable at 74 per cent of their annual amount.
"It is not unreasonable to expect then that the PRSI ceiling would also kick in at 74 per cent of its value, i.e. 74 per cent of £28,250 (21,690). However, the Government are not allowing this. The result is that 340,000 employees will pay additional tax of approximately £300 (i.e. 26 per cent of £28,250 at 4 per cent) which they would not have expected to pay. There are also tens of thousands of employees in the income bracket, in between £21,690 and £28,250 who would have expected a PRSI holiday, but will not get one.
"This is a very mean approach by the Government, which the Minister neglected to mention when he announced his budget. The Minister is happy to reduce allowances to 74 per cent rate but is not bringing down the PRSI tax ceiling by the equivalent rate and approximately 400,000 employees will pay an additional £300 each in this shortened tax year, " said Deputy McGrath.
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