Make tax credits refundable, says CORI

THE refunding of tax credits to low-paid employees would help tackle problems of child poverty, childcare and ‘working poor’, according to religious leaders.

The Conference of Religious of Ireland (CORI) justice commission taxation policy suggests that the Government could achieve this without having to increase income tax or corporation tax rates.

However, the commission also warns against being caught in a race to the bottom which could reduce corporation tax to zero because of competition from some EU countries.

Ahead of the policy briefing launch today, the commission said the introduction of tax credits three years ago was welcome but that problems persist where a person does not earn enough to use their full tax credit. This effectively means that the lowest paid do not benefit from any tax reductions introduced by the Government in its annual budgets.

Fr Sean Healy, the commission’s director, said making credits refundable would provide a simple solution to this problem.

“This would mean that the part of the tax credit that an employee did not benefit from would be “refunded” to him or her by the State. The major advantage of this would lie in addressing the disincentives currently associated with low-paid employment,” he said.

“Following the introduction of refundable tax credits, all subsequent increases in the level of the tax credit would be of equal value to all employees,” Fr Healy said.

He further suggests a refundable tax credit should be available for all children, either as an addition to the credits of working parents or available on request as a payment to those without a taxable income.

The CORI justice commission believes that this and other measures, such as raising the lowest social welfare rates to 30% of the average industrial wage and funding development of the primary health care system, could be achieved by standard rating all tax reliefs.

These reliefs currently cost the exchequer around €8.4 billion a year. But the commission estimates that at least €2bn of this could be saved by making reliefs available at 20% rather than at the 42% level at which many are available at present.

“For many of the schemes, high earners are receiving tax relief at the 42% level with few receiving it at the 20% rate,” the commission policy states.

“While this would be only one step in the right direction, it would produce a much fairer tax system while also making substantial resources available.”

Other Government initiatives proposed to ensure a fairer tax system include addressing the issue of windfall gains from rezoning and moving towards the introduction of a carbon tax and a land-rent tax, with the proceeds being used to reduce income tax.