“The Irish welfare system does not differentiate significantly between social insurance and social assistance, or between contributory and non-contributory state pensions. Accordingly, PRSI contributions do not bear a strong link to welfare benefits, so that it is acceptable to combine (employee) PRSI with income tax and USC when looking at personal income taxation in Ireland.” IMF “Selected Issues” September 2012
It looks increasingly likely that Pay Related Social Insurance (PRSI) will feature in the Budget 2013 announcements in three months time. Today, the Minister for Social Protection Joan Burton launched a previously-leaked review of the so-called “Social Insurance Fund” for 2010 and her accompanying comments provided a strong enough gust to sustain the PRSI kite-flying.
The 167-page KPMG actuarial review of the Fund in 2010 is available here, it was completed on 7th June, 2012 – the flying of this particular kite has all the hallmarks of being a long-planned venture!
The Fund was set up in 1953 and if you believe the Minister, it is supposed to be a self-balancing fund whose income from PRSI payments by workers is offset by spending on pensions and a number of other benefits including statutory redundancy, maternity benefit, carers benefit, illness benefit and jobseekers benefit but notably it was not intended to cover jobseekers allowance.
It seems likely that Minister Burton will justify either an increase in PRSI or reduction in payments from the fund, or both, on the basis that the fund is in deficit. The annual deficit was €2.6bn in 2010, and according to Minister Burton is provisionally estimated at €1.5bn in 2011.
We know we need find a €3.5bn annual adjustment somehow in 2013, but it is important to remember that Minister Burton’s positioning is no more than window-dressing to justify what is essentially a misdirection – the only true objective is that Ireland must balance its books overall. How we manage components of income and expenditure is for ourselves to determine. Artificially hypothecating income and expenditure – for example when Minister Hogan says that all of a sudden, the Household Charge must equal a certain share of Local Authority spending – is hokum.
Even KPMG itself concedes that within the Fund there is no hypothecation of receipts with expenditure, it’s one giant mixing bowl. But more accurately, our national income is one giant mixing bowl and if, for example, we suddenly decide that the carers allowance should have a higher priority than ministerial pay, we can just cut ministerial pay and re-allocate that money to the carers allowance.
The IMF recently concluded that in Ireland, PRSI is really just part of the big pot of income taxes along with the Universal Social Charge, and it should properly be regarded as part of our tax rate. This view will be offensive to Minister Burton who is constrained by the Programme for Government commitment not to raise income tax rates. No doubt, Minister Burton will be hoping her positioning on PRSI will assist her in justifying adjustments to PRSI or the benefits that it pays.