Dáil Éireann - Volume 530 - 20 February, 2001

Priority Questions. - PRSI System.

34. Mr. J. Mitchell asked the Minister for Finance if he has received representations to reverse his decision to abolish the ceiling for employers' PRSI; and, if so, if he will take account of the representations and reverse his decision to avoid damage to investment and employment. [4722/01]

Minister for Finance (Mr. McCreevy): I can confirm that I have received representations regarding the decision to abolish the PRSI contribution ceiling for employers, as announced in my Budget Statement. However, I do not propose to alter that decision.

As I indicated at the time of the announcement, the PRSI changes should be viewed in the context of the significant improvement in the business climate. Although not all businesses have benefited from the significant corporation tax reductions achieved in recent years, many have done so. In addition, the substantial improvement I announced in the budget in the capital allowances for plant and machinery will benefit a wide range of enterprises. Moreover, our employer PRSI system continues to compare favourably with the EU norm. Overall, therefore, [1171] the environment for business continues to be very positive.

I have already signalled my intention to press ahead with the reform and simplification of the PRSI and levies system which has become particularly complex over the years. In progressing this agenda in my next budget, I will take into consideration the concerns expressed by the various employer interests.

Mr. J. Mitchell: Can I take it the Minister will review the situation next year in the light of experience?

Mr. McCreevy: In my second last budget, I indicated that I intended to simplify and restructure the PRSI and levies system. In the most recent budget I made some significant changes, such as the abolition of the employer's ceiling and – something that received less attention – abolition of the ceiling for self-employed and proprietary directors, while reducing the rate in that regard. The PRSI and levies system is complex, with steps, ceilings and other innovations which were introduced over the years. The last budget should be seen in the context of continuing reform. Hopefully, after the budget later this year, people will be pleased with the overall result.

Mr. J. Mitchell: The Minister and I have received representations which demonstrate that if he proceeds with abolishing the ceiling this year, it will have an adverse impact on a number of industries, particularly in the high tech sector.

Does he agree this move, together with problems caused by the shortage of labour and the fact that some of these industries will shortly move from a corporation tax rate of 10% to 12.5%, will be inimical to our interests?

Mr. McCreevy: Overall costs will be of most concern to business. The system had got to a point where only groups of employers with employees on salaries of under £36,000 per annum were paying 12% PRSI. When one went above that ceiling the employer paid no PRSI.

I have long held the view that this is an anachronism. This will be a short tax year, so only a small percentage of employees will earn in excess of £36,000 by 31 December 2001. A new tax year will then start due to the alignment of the tax and calendar years and people should wait to see what my budget later this year will bring in terms of further PRSI reform.