The government has been urged to introduce significant increases in PRSI payments to employees, employers and the self-employed from 2023. The call comes in pre-budget papers prepared by senior public servants.
1.5 percentage point increases in most PRSI rates over years are needed to fill the emerging gap in the Social Insurance Fund, which has been hit hard by the pandemic, according to tax strategy papers in which civil servants outline upcoming budget options.
Under the proposals, the PRSI rate paid by most employees would rise 4 per cent to 4.5 per cent in 2023 and increase by another half point in both 2025 and 2027 to reach 5.5 per cent. The fee will also start at lower profit levels than it currently is – with weekly earnings equivalent to around €13,000 per year, compared to €18,300 now.
Previous tax strategy papers have highlighted that self-employed people get most benefits from the Social Security system but pay PRSI at a rate much lower than the combined employer/employee contribution for those employed. The paper recommends a significant increase for this group from 2023 onwards, with the PRSI they pay increase from 4 percent now to 5.5 percent in 2023 and 1.5 percentage points each year through 2027 as well as a final percentage point increase in 2028 to reach a rate 12.55 percent.
Employers will also face higher payments. They currently pay a PRSI of 8.8 per cent on earnings under €398 per week and 11.05 per cent for amounts above that. Newspapers are calling for that rate to rise to a single rate of 12.55 percent by 2027, and again with increases beginning in 2023.
The Social Security Fund has slipped into deficit due to the pressures of the pandemic, which has led to more claims and less money being paid. This has translated €3.9 billion at the end of 2019 into a projected shortfall of €3.8 billion this year.
Additional revenue from the proposed price increases will reach €3.6 billion per year by 2027.
The report also calls for a host of other reforms, most of which will include increasing the PRSI yield.
It says the government could more than double the weekly income threshold for employees who get social insurance coverage to help replenish the state fund after Covid and explain the demographic change.
The paper argues that the weekly earnings threshold – the minimum a person must earn before accessing benefits under the social insurance system – should rise from €38 per week to €96.15 per week, or €5,000 per year.
If the measure is approved, it will actually cost the treasury around 7.3 million euros initially – as employers will no longer have to make contributions to people who earn less than the new cap. But management believes that this will be offset in due course by spending savings on short-term plans because those who earn less than the new threshold cannot determine their entitlement to those benefits.
The proposed threshold is the weekly equivalent of the level the self-employed pays for social insurance coverage.
It is one of several measures the ministry says will “improve the adequacy, sustainability and equity of the social insurance system as well as its future viability. [social insurance fund]. “
It is proposed that a fixed annual voluntary contribution fee be introduced for both ex-employees and self-employed contributors of €600 from 2023, with the rate gradually increasing to €750 and €1,000 between 2025 and 2027.
These are optional payments available to people under age 66 to maintain their state retirement benefits, even when they are not compulsorily insured. They secure access to the same level of benefits but are not charged at the same rates for employees and the self-employed.
The rule change will eventually lead to a return of 1.8 billion euros to the treasury, according to the newspaper.
It also proposes to reduce the level that employees cannot afford to pay for social insurance from 352 euros to 250 euros per week. This will lead to an additional income of 62 million euros annually, and will affect about 243,400 workers who currently earn between 250 euros and 352 euros per week.
Another 195,800 contributors who currently earn between €352 and €424 per week, will also be affected, to an extent.
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