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TSG 14/08 TAX STRATEGY GROUP PAY RELATED SOCIAL INSURANCE CHANGES Introduction 1. The model of social insurance which has evolved in Ireland mirrors the structure of social insurance found in other developed countries with a dedicated fund or “trust” which is financed, in the first instance, from contributions made by the working age cohorts (including contributions from employers) to provide pensions and other working age benefits to those who have contributed to the “trust”. Contributions made can therefore be differentiated from taxation in that those who participate do so in the knowledge that they will benefit from their contribution in the event of certain contingencies arising during their working life (i.e. unemployment, illness, maternity) and thereafter upon retirement from the work force. In terms of a social policy instrument the social insurance system provides: flexibility in providing a “safety net” in volatile labour market conditions. Pension entitlements earned when in employment are safeguarded, particularly for those who are forced to change employments or experience periods of unemployment. an efficient collection mechanism – contributions comprise both an employee and employer element on the same income base, which would be difficult to replicate in a parallel system. The contributory nature of social insurance means that there is a tangible benefit from participation in social insurance. Measures to improve the visibility in the link between contributions and entitlements, such as the change to the total contributions approach for entitlement to pension in 2020 as proposed in the National Pensions Framework, also ensure that the benefit derived is more proportionate to the level of participation. Social insurance also provides solidarity both on an intergenerational basis and by supporting contributors who are more vulnerable. The Actuarial Review of the Social Insurance Fund as at 31 December 2010 which was published in June 2012 highlighted the redistributive nature of the Fund with those on higher incomes getting less back than they pay in. The social insurance system is the main pillar of social protection in Ireland. In this context, the introduction of any new measures should be consistent with the contributory nature of the system and the principle of solidarity which underpins its operation. Funding Future Benefits 2. Social insurance spending has traditionally been funded on a tripartite basis – with contributions coming from the Exchequer, employers and employees. Legally, the 1 Exchequer is the residual financier of the Fund and Exchequer contributions were the norm for over 40 years, for example, in 1967, the State contribution was 38% of SIF expenditure; and almost 29% in 1985. However, no Exchequer contribution was required over the period 1997 to 2007 inclusive when social insurance income exceeded Fund expenditure. In 2008, the current operating balance of the SIF moved into deficit with expenditure exceeding income by €255m. This deficit accelerated in 2009 when it reached €2.49 billion and further rose to €2.75 billion in 2010. This resulted in the requirement for an Exchequer subvention in 2010 as the accumulated surplus was exhausted and this requirement will continue (in the absence of revenue raising measures). The Revised Estimates provides for a subvention of €0.69 billion from voted expenditure to fund the deficit on the SIF in 2014. SIF income and expenditure over the past eight years is presented in the Table below. Table 1: Social Insurance Fund Income and Expenditure, 2007 - 2014 Year SIF SIF Operating Cumulative Income expenditure Surplus / Surplus at deficit end of year 2007 2008 2009 2010 2011 2012 2013 2014 €000 7,834,147 8,144,410 7,297,601 6,709,681 7,543,883 6,785,557 7,317,505 7,681,860 €000 7,250,990 8,399,739 9,784,225 9,460,835 9,004,245 8,869,566 8,631,635 8,367,330 €000 583,157 -255,329 -2,486,624 -2,751,154 -1,460,362 -2,084,010 -1,314,130 -685,470 €000 3,632,298 3,376,969 890,345 0 0 0 0 0 Exchequer Subvention Requirement €000 -1,860,809 -1,460,362 -2,084,010 -1,314,130 -685,470 Actuarial Review of the Fund 3. The Actuarial Review of the Social Insurance Fund as at 31 December, 2010, highlighted the growing deficit in the Fund and the prospect that it will, in the absence of measures to address the deficit, accelerate further in the future, driven primarily by pension costs. It is estimated that in excess of €900m additional provision will be required over the next 5 years to fund increases in the numbers of recipients of the State Pension (Contributory) scheme. The principal findings from the Review1 were: 1 The Fund currently has a significant shortfall of expenditure over income (provisional 2011 shortfall of €1.5bn on expenditure of €9.0bn but income of €7.5bn). The Actuarial Review takes full account of the SIF expenditure and income measures introduced in Budgets 2011 and 2012 2 In the absence of any action to tackle the shortfall, the 2011 annual deficit of €1.5bn will double to €3.0bn by 2019. By 2066 the deficit will have increased to €25.7bn. As a % of GNP, the shortfall will increase from 1.1% of GNP in 2011 to 2% in 2019. The deficit will further increase to 6.4% by 2052 before gradually reducing to 5.7% by 2066. Unless PRSI income increases and/or expenditure levels reduce, the Exchequer subvention will need to more than treble (from 2011 levels) by 2030 and increase by a factor of almost eight by 2040. The deterioration of the shortfall in the Fund will continue despite recent changes to social insurance funded schemes - including increases in the State Pension age and the more onerous eligibility criteria for the State Pension (Contributory) (SPC). In the medium to long term, pension related expenditure will account for an increasing proportion of Fund expenditure - rising from 57% in 2011 to 85% in 2066. The over 65 year old population is projected to increase from 11% of the total population in 2010 to 15% in 2020 and to 24% in 2060. The pensioner support ratio is projected to decline from 5.3 workers for every individual over pension age in 2010 to 3.9 workers by 2020 and to 2.1 workers by 2060. KPMG, the independent consultants who undertook the actuarial review state that while the long-term projections, by their very nature, are unlikely to be borne out in practice, they emphasise the trends which emerge over the period. Scope for PRSI change 4. The Irish social insurance system is now relatively comprehensive following the extension of coverage over the period 1988 to 1995 to the self-employed, part-time workers and new civil and public servants. The principal cohorts of workers remaining outside social insurance are family members directly engaged in family businesses whether as an employee or as a self-employed worker. In this context the implementation of EU Directive 2010/41/EU in August 2014 has for the first time given access to selfemployed social insurance to spouses/civil partners who work alongside a self-employed contributor in a capacity other than that of employee or business partner. Previously these spouses/civil partners could only access self-employed social insurance if they were in a recognised business partnership with their spouse/civil partner. DSP intends to review the categories of people who continue to be excluded from social insurance cover. The categories affected are primarily (i) self-employed prescribed relatives other than spouses/civil partners (ii) prescribed relatives who are employed in the common house of the employer and (iii) spouses/civil partners who are employed by a self-employed spouse/civil partner. As these cohorts are outside social insurance, numbers affected are not currently available. The structural PRSI measures implemented in recent Budgets will have a positive and long-term impact on the funding of the SIF. These measures include increases in rates of contribution, the abolition of ceilings for charging PRSI, the abolition of relief from PRSI previously applied to employee pension contributions, the abolition of the PRSI-free allowance as well as the broadening of the base on which PRSI is charged through the 3 abolition of exemptions. These revenue raising measures were accompanied by very extensive expenditure reducing measures including stricter contribution conditions for entitlement, reductions in duration of entitlement, removal of entitlement to concurrent social insurance payments, increases in pension age as well as major reductions in entitlements under the Treatment Benefits and Redundancy payments schemes. Details of PRSI measures since 2009 are outlined in the Appendix. The extent of these changes means that there is limited scope for further structural reform. Programme for Government Commitments 5. Programme for Government commitments also influence what changes can be implemented in charging PRSI. In terms of employer PRSI the Programme contains a commitment that “there will be no increase in the standard 10.75% rate of employer PRSI”. In fulfilment of another Programme commitment the lower rate of employer PRSI was halved from 8.5% to 4.25% for a 2 ½ year period from July 2011 to December 2013, as part of the Jobs Initiative announced in May 2011. (This lower rate applied to employments where weekly earnings were €356 per week or less.) The rate reverted to 8.5% at the beginning of 2014. While there are no commitments in the Programme for Government relating specifically to the rate of PRSI paid by employees, it does contain a commitment that it “will not increase the top marginal rate of taxes on income”. XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXX. PRSI as a statutory deduction 6. The PRSI contribution paid by employees is one of three statutory deductions made from earnings – taxation and the Universal Social Charge (USC) are the other two elements. Increases in any one of these statutory deductions have a direct impact on the incentive to work, particularly for low paid workers. Employee PRSI increases would therefore have to be considered in the context of safeguarding the incentive to work, taking account of the tax wedge (of which PRSI is only one component). The recently published report on A Strategy for Growth: Medium Term Economic Strategy 2014 – 2020 identifies that “a key challenge for the State is to ensure a sustainable and flexible approach to pensions over the medium and long-term that delivers an adequate income in retirement. The additional burden can already be seen in the resources required to fund State pensions, which increased by over €190 million in 2013 alone. Pressures of this magnitude or greater will continue in the medium-term and will therefore be central to any future restructuring of the tax (including USC) and PRSI systems.”2 Page 27 of report “A Strategy for Growth: Medium Term Economic Strategy 2014 – 2020” published by Department of Finance in December 2013 2 4 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX. Options for Change 7. The core issue of how to address the current and future shortfalls in the Social Insurance Fund, without unduly penalising any particular sectors of society, involves a balance between: scheme-related expenditure measures (relating to rates of payment, duration of payment and measures relating to eligibility), increase in PRSI contribution rates, changes to extend the coverage of social insurance. The Programme for Government is committed to maintaining the existing basic level of rates of social welfare payments, including social insurance payments. Therefore, the principal means of generating additional PRSI income is through changes to the rates of contribution or coverage for social insurance. Notwithstanding the Programme for Government commitment relating to PRSI rates (as set out in paragraph 5 above), a number of options to generate additional income for the SIF are set out below. Each of the options is considered in isolation and would require further consideration if implemented in conjunction with other measures. Option 1: General PRSI Rate Increase 8. A general increase of (i) 0.5% and (ii) 1% in both employers and employees PRSI would generate the yield outlined below. Table 2: Option 1 - Increases in Employer and Employee PRSI Rates Full year yield Full Year Yield 0.5% Increase in PRSI 1% Increase in PRSI €m €m Additional employer PRSI* 274.8 549.6 Additional employee PRSI 257.2 514.4 532.0 1064.0 Total Additional PRSI *Refers to both 10.75% and 8.5% employer PRSI rates An across the board increase in the rate of PRSI contributions paid by employers and employees would generate significant levels of additional income to the SIF. A 1 % increase in the rate of PRSI from 4% to 5% paid by the self-employed would yield in the region of €94 million. One of the findings of the 2010 Actuarial Review of the Social Insurance Fund was that “the self-employed achieve better value for money 5 compared to the employed – when comparison includes both employer and employee contributions in respect of the employed person.”3 A general increase in the rate of PRSI applied to the income of employees and the selfemployed would increase their marginal rate of tax. This would directly affect the incentive to work for those on lower pay. No additional social insurance benefit would accrue from the additional charge but such an approach would increase the sustainability of adequate pensions and other benefits in the years ahead. In the case of employer PRSI, the 2013 Forfas report on Costs of Doing Business in Ireland 2012 noted that “Ireland has one of the lowest levels of employer’s social welfare contributions. The Irish rate (9.7%) is significantly lower than the OECD average (14.8%) and the euro area average (18.8%)”.4 CSO data confirm that employer social security costs here are the fifth lowest across the EU27.5 Option 2: XXXXXXXXXXXXXXXXXXXXXX 9. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXX XXXXX XX XX XXXXXX XXXXXXXX XXX XXXXXXX XXXXX XX XXXX XXXX XXXXXX XXXXXXX XXXXXXXXX XXXXX XXX XXXXXX XXXX XXXX XXXXXX XXXXXXXXX XXXXXXXX XXXXX XXX XXXXX XXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. XX XXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXX. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXX. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3 Page 10 of the Actuarial Review of the Social Insurance Fund as at 31 December 2010. Page 24 of report “Cost of Doing Business in Ireland 2012” published by Forfas in April 2013 5 Pages 35 and 36 of report “Business in Ireland 2011” published by CSO in November 2013 4 6 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXX XXXXXXXX XXXXXX XXXX XXX XXXXX XXXX XXX XXXXX X X X X X X X XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXXX XXX XXX XXX XXXX XXXX XXX XXXX XXXX XXXX XXX XXXX XXXX XXX XXXX XXXX XXXX XXX XXXX XXXX XXXX XXXX XXXX XXXX XXX XXXX XXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX: - XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXX, XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Option 3 Changes in Social Insurance Coverage 10. Ireland provides access to employee social insurance at very low levels of income as compared with the UK. In Ireland social insurance applies once weekly earnings exceed €38. The equivalent earnings threshold for access to UK National Insurance is ST£111 (equivalent to €138 approx.). Once weekly earnings exceed €38 the employer pays PRSI. Employees only start paying PRSI once weekly earnings exceed €352. 7 The threshold for employees paying social insurance was originally a minimum of 18 hours’ work. In the early 1990s this threshold changed from hours of employment to a monetary threshold. The monetary threshold of €38 has remained relatively unchanged since its introduction in the early 1990s. Failure to index this entry threshold for social insurance has eroded the level of engagement in the workforce originally contemplated when the thresholds were set. Based on the current national minimum hourly rate of pay for employees of €8.65, an employee earning €38 per week only has to work approximately 4 ½ hours per week – the original threshold was 18 hours. If the 18 hour threshold were to apply, it would equate to weekly earnings of €155.70 (based on the national minimum hourly rate of pay for employees). Access to social insurance provides the contributor with entitlement to valuable pension entitlements as well as short-term benefits. The low monetary threshold for access to social insurance also means that individuals can qualify for short-term benefits which are disproportionate to their income when working. This is because the level of benefits has increased without corresponding indexation of the threshold for insurability to access those benefits. For example the weekly entitlement to short-term benefits of workers earning between €38 and €150 per week is €84.50 (personal entitlement) plus €80.90 for a qualified adult. This means that a person earning, for example, €80 per week has an Illness Benefit entitlement which exceeds their income from employment i.e. €84.50 per week. Finally the Department’s examination of categories of workers excluded from social insurance referred to in paragraph 3 above, includes the exclusion from social insurance currently applied to spouses/civil partners employed by a self-employed spouse/partner. This examination arises from the implementation of EU Directive 2010/41/EU relating to spouses/civil partners engaged in a self-employed capacity. At the current low entry threshold of €38, there is significant potential for couples to contrive to employ their spouse to gain access to valuable social insurance benefits. To ensure the bona fides of any employments between spouses/civil partners, a more realistic entry threshold for access to social insurance is vital. Consideration should therefore be given to increasing the earnings threshold for entry into social insurance from €38 per week. Weekly earnings of €100 are regarded as representing a realistic attachment to the workforce to justify entitlement to social insurance benefits. This would be equivalent to €5,200 per annum if working continually. Based on the national minimum hourly rate of pay for employees, it would represent 11.5 hours’ work per week, which is closer to the original hourly threshold applied. The self-employed must earn in excess of €5,000 annually (or the weekly equivalent of just over €96 per week) before they can access social insurance. It is not unreasonable that employees, who have entitlement to a greater range of social insurance benefits than the self-employed, would be required to have a similar level of income. Increasing the entry threshold to €100 would represent a saving for employers who would no longer pay PRSI at 8.5% for those earning between €38 and €100. While there would be an initial slight reduction in income to the SIF, this would in time be offset by savings 8 on short-term schemes as those earning below the new threshold could not establish entitlement to these benefits. Table 5: Option 3 Impact of increase in the €38 employee threshold to €100 per week New Weekly Income No. of Employments Reduction in SIF Threshold for Social Affected €m Insurance € 100 103,224 13.1 Option 4: Reduction in Threshold for Payment of Employee PRSI 11. Consideration needs to be given to reducing the level of earnings at which employees pay PRSI. As indicated above, employees in Ireland gain access to social insurance at a particularly low level of earnings when compared to the UK. Once within social insurance employees do not pay PRSI until their weekly earnings exceed €352. The equivalent earnings threshold in the UK is £153 (€191). The following table compares the appropriate social insurance earnings threshold between the 2 countries. Table 6: Comparison of Employee Social Insurance Thresholds between Ireland and the UK IRELAND UK Cohorts Weekly Thresholds Employees not within social €38 or less £111or less insurance (€138.84 or less)* Employees within social €38 - €352 £111 - £153 insurance and not subject to ( €138.84 – 191.38)* charge Employees within social In excess of €352 In excess of £153 insurance and subject to charge (In excess of €191.38)* *Based on an exchange rate of 1.25. A reduction in the threshold for employee PRSI liability is justifiable by reference to benefits accruing. Currently those earning less than €300 per week have entitlement to reduced (graduated rate of) short-term benefits. They do not pay employee PRSI. Once weekly earnings exceed €300 the level of short-term benefit entitlement is the standard (higher) rate. The employee only begins paying PRSI when their weekly earnings exceed €352 and they are making a contribution to their full rate short-term benefit. Those with earnings between €300 and €352 also have entitlement to full short-term benefits but do not make any PRSI payment. The threshold for liability to PRSI should be reduced to ensure there is a stronger link between contributions and the benefits accruing from those contributions. Consideration could be given to: - Reducing the weekly employee threshold for paying PRSI to €300. This could be justified as this is the earnings level at which employees gain access to full rate short-term benefits, AND 9 - Introducing a new 1% rate of employee PRSI for earnings between €300 and €352. Those currently earning between €300 and €352 do not pay any PRSI. The new PRSI charge would apply to all of their income. Table 7: Option 4 Reduction of Threshold at which Employees Pay PRSI with new 1% PRSI Charge for Earning between €300 and €352 New €300 Threshold for No. of Employments Full Year Yield Payment of Employee PRSI Affected €m New 1% PRSI Rate for Earnings between €300 and 78,266 8.1 €352 This measure will have a negative impact on those earning between €300 and €352, as they will be liable to pay PRSI at 1% on all of their income. Option 5: Targeted PRSI increases 12. As an alternative to general PRSI rate increases, more targeted increases could be considered. These options are being presented as a means of providing indications of the levels of additional income which could be achieved. Option 5a Increase in the standard 10.75% rate of employer PRSI 13. This would apply in respect of earnings in excess of €356. Programme for Government commitment is to maintain the standard rate of employer PRSI. Table 8: Increase in the standard 10.75% rate of employer PRSI Full Year Yield €m Increase the rate of employer PRSI by 0.5%, 256.8 where employee weekly earnings exceed €356 Increase the rate of employer PRSI by 1%, 513.6 where employee weekly earnings exceed €356 Option 5b New Higher Rate Employee PRSI 14. Introducing a higher 5% rate of employee PRSI to apply only for those earning in excess of €1,443 per week would generate additional income. There is a precedent for applying a higher rate of PRSI on earnings over the equivalent of €75,000 per annum. Some civil and public sector employees pay modified rate PRSI at the rate of 0.9% on earnings up to and including €1,443 per week (€75,036 annually). If their earnings exceed this figure a higher PRSI charge of 4% applies to earnings in excess of €1,443 per week. The proposed higher contribution rate of 5% to apply to earnings 10 over €75,000 in other employments would mirror that applied to modified rate civil and public sector employees. Table 9: New Higher Rate Employee PRSI No. of Employments Affected 1% Increase in Employee PRSI for weekly Earnings in 249,561 excess of €1,443 11 Full Year Yield €m 60.3 Appendix Budgets 2009-2014 - PRSI changes 1. Table 10 below outlines the first and full year costs and savings announced in each of the Budgets over the period 2009 to 2014 inclusive. Table 10: Social Insurance Fund Income Yield, Budgets 2009 – 2014 Year Budget Year Yield Full Year Yield Increase / (Decrease) Increase /Decrease €m €m 69 104 2009 0 0 2010 296 448 2011 Budget (88) (185) 2011 Jobs Initiative 57 74 2012 286 339 2013 169 185 2014 Reversal of Jobs Initiative Total Savings 789 965 All of the measures announced over the period since 2009 are detailed below: 2009 2010 The annual earnings ceiling for employee PRSI increased by €1,300, from €50,700 to €52,000 and, in the Supplementary Budget in April 2009, this ceiling was further increased from €52,000 to €75,036. There were no changes to PRSI in Budget 2010. 2011 Significant PRSI changes were announced in Budget 2011. The annual earnings ceiling for the payment of employee PRSI was abolished Office holders pay PRSI at 4% on all income, where their income is over €5,200 per annum, The Health Contribution was abolished The rate of PRSI payable by the self-employed was increased from 3% to 4% The threshold for a liability to a Class S contribution by the self-employed increased from €3,174 to €5,000 per annum; The rate of employee PRSI payable by certain civil and public servants (Classes B, C and D) was set at 4% where earnings exceed €75,036 per annum (the former employee annual ceiling). These Classes pay 0.9% on weekly income over €26. From 2 July 2011 employer’s PRSI on those earning less than €356 a week or equivalent has been halved from 8.5% to 4.25%. This change was introduced on a time limited basis for 2½ years and reverted to 8.5% on 1 January 2014 12 2012 2013 2014 Relief on employee PRSI in respect of payments by employees to their own pensions and PRSA’s was abolished. Employer PRSI is payable on half of the employee payment to the pension or PRSA Share-based remuneration became subject to employee PRSI only at the rate of 4% Full abolition of relief on employer PRSI for pension contributions made by employees. Phased increase in the minimum number of paid PRSI contributions required to be eligible to become a voluntary contributor from 260 up to 6 April 2013 to 520 from 6 April 2015. The weekly PRSI-free allowance of €127 for people paying at Class A, H and E and of €26 for modified rate contributors was abolished The minimum flat rate for self-employed contributors was increased from €253 to €500 The flat rate payment of Voluntary contributors made by former self-employed contributors was increased from €253 to €500 For those with an annual self-employed income in excess of €5,000 but who have no net liability to tax, the flat rate payment was increased from €157 to €310 Modified rate contributors were exempt from PRSI in respect of self-employed earned income (from a profession or trade) and any other unearned income. This exemption was abolished and all such income became liable to PRSI at the rate of 4%. Employees with no additional earned self-employed income but who do have unearned income only were not affected by this measure in 2013 Maternity Benefit taxed in full from 1 July 2013. The 4.25% employer PRSI rate applied to employees with weekly earnings of less than €356 reverted to the original 8.5% rate from 1 January 2014 From 1 January 2014 PRSI at 4% is chargeable on the additional unearned income of o Employees or occupational pensioners under pension age o where the unearned income is their only additional source of income and it is taxable under the Revenue Commissioners’ self-assessed system and o the individual is a “chargeable person” for income tax purposes. 13