Employers are sitting ducks when it comes to PRSI

Funding for education budget documents contain more than their fair share of fine print. Buried deep in the announcements last week was the detail of a 0.1 percentage point change in employers PRSI contributions.

Employers are sitting ducks when it comes to PRSI

The levy is expected to increase further 2019 and 2020 respectively, which would increase the employer PRSI to 10.95% and 11.05% in those years. That mightn’t sound much, but it has a big impact.

Employer PRSI is a tax which is pretty much invisible to everyone except to the employers who must pay it.

While employees and the self-employed are well familiar with the 4% PRSI which comes out of their wages, employers currently pay an additional 10.75% tax on the gross wages of most of their employees.

That’s a hefty sum because in most cases there are no allowances, no reliefs and no limits on the amount due.

In 2015, the last year for which auditors’ accounts were published, the Government collected about €6.2bn in employers PRSI.

By contrast, employees PRSI came to about €1.8bn and the self-employed paid in €460m.

PRSI goes straight into the nation’s Social Insurance Fund. The PRSI collected from employers, employees and the self-employed does not contribute to the overall totals of tax collected by the exchequer, but instead reduces the costs of the Department of Social Protection.

It is the source of the social welfare benefits paid by the State. The employers’ PRSI element provides entitlement to important benefits for employees which are not enjoyed by the self-employed, for example unemployment benefit.

A smaller portion (0.75%) of the percentage PRSI collected goes into a national training fund operated by the Department of Education and Skills.

The 0.1 percentage point increase in employers PRSI will increase the amount going into the national training fund. In effect, employers are being asked to make more of a direct contribution towards the development of the national skills set in the workforce. This isn’t a bad idea in itself, but it is unusual in the context of a nation which seems to have forgotten how to ask citizens to pay the bills.

The stalling on local

property tax revaluations (which would lead to higher charges), the de facto abolition of water charges, and the abandoning of the broadcasting levy are all symptoms of a preference to fund Government expenditure for specific purposes through general taxation.

This 0.1 percentage point increase goes against that particular trend. It is easier to ask employers rather than taxpayers generally to pay extra — in the overall scheme of things, employers are sitting ducks when it comes to compliance enforcement.

The quality of education provides Ireland with key competitive advantage among all our European neighbours. It is sometimes overlooked in the make-up of our foreign direct investment offering.

The March 2016 report by an expert group on the funding of higher level education, chaired by Peter Cassells, pointed out that employers are major beneficiaries of the outcomes of higher education because there is a high proportion of graduates in the workforce.

That report was strongly in favour of contributions from employers to make up a “core element of future funding” and suggested increasing the National Training Fund levy.

But the recommendation to increase this levy was only one of a series of measures proposed to improve third level funding. As the fate of so many expert reports, recommendations get cherry-picked such that only the easiest ones to implement see the light of day.

For instance, another option proposed by Mr Cassells and his team was the establishment of a student loan system, but that is probably unlikely to happen anytime soon.

Funding for the third level is critically important, and the Government has chosen to improve funding in what is politically the most straightforward way. However the easiest target — the employer — is not always the best policy option. Employers are already paying a huge amount.

Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland.

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