ESRI report: Equalising PRSI Treatment of Self-Employed and Employed

I have extracted the pages dealing with this particular subject, for which I have long argued.

While the lack of entitlement to certain contributory benefits has traditionally been advanced as a reason for why the self- employed pay less PRSI than employees, recent reforms have extended eligibility for the vast majority of these benefits to the self-employed. The Department of Employment Affairs and Social Protection (2020) found that these changes mean that self-employed workers now have access to around 93 per cent of the contributory benefits that employees do, in value terms, while making much fewer contributions.
...
While many self-employed are involved in ‘entrepreneurial activities’ such as
employing others, innovating and investing, those operating as self-employed include everyone from taxi-drivers to IT consultants and barristers. Blanket lower rates of tax – including PRSI – are therefore poorly directed at encouraging entrepreneurship or business start-ups.
 

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  • ESRI Report on equalising PRSI treatment between self-employed and employees.pdf
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We seem to be obsessed with how to extract more taxes from working people in this country. We seem to put no energy into being more efficient and lowering taxes and creating wealth. We are reliant on FDI to create the wealth which could suddenly decide to leave if we become non competitive due to how badly we run the country.
why Don’t the ESRI Do a report on wealth creation and saving on government waste
 
Brendan Burgess said:
Blanket lower rates of tax – including PRSI – are therefore poorly directed at encouraging entrepreneurship or business start-ups.
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Charging a maximum tax rate of 62% or whatever it is will only encourage tax evasion.

The Irish PRSI "benefits" are not worth 15% of pay for higher paid workers. You'd do better buying insurance and pensions from a private company, or just by saving the money in a bank.

If they capped employee's PRSI then it could make sense, i.e. only pay 15% up to some reasonable threshold.

Or alternatively how about returning to pre-financial crisis system, where the self-employed had no ceiling on employee PRSI whereas everyone else had a ceiling?
 
Hi Nickle

Of course, we should be more efficient in our expenditure.

But when it comes to taxes, inequalities such as the differential treatment of PAYE employees and the self-employed should be eliminated.

Brendan
 
ashambles said:
The Irish PRSI "benefits" are not worth 15% of pay for higher paid workers.
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Not sure of that.
But, they are great value for a self-employed person earning €20k a year.

The best solution would be to have an Individual Account system, so that the PRSI paid by you and your employer goes into a pot in your name. The benefits in retirement would depend on what you have contributed.

Brendan
 
And just to be clear about the objectives of this ESRI paper:

This paper sets out a range of options that a future government seeking to raise or replace tax revenues might consider, providing a brief review of each tax and the potential economic and distributional impact of reforming it. In doing so, it does not seek to advocate any particular tax-raising measure as ultimately those are political decisions which depend on a government’s distributional goals, value judgements and wider priorities. Rather, it seeks to provide evidence for policymakers who are in a position to make these decisions.

So for example, it shows how little a wealth tax would actually raise, unless it were widely applied to property including farmland.
 
Brendan Burgess said:
Not sure of that.
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On 100,000 you'd be paying 15,000 a year or 600,000 over 40 years.

Maybe I'm missing some benefits but from what I see it's

Dental benefit 42 euro per year
Optical around 100 every two years
Jobseeker's benefit of 8,300
Illness benefit of 21,600
COAP 13,000 per year, say 200,000 on average.
 
It's actually much worse than that. -
1250 per month/15k per year compounded at 7% per annum (rough average stock market returns) over 40 years would get you 3 million euro or a 120k per annum income in retirement at a 4% withdrawal.
 
Hi ashambles

That is why I have advocated for an Individual Account Based system.

Employees would have more in their fund than the self-employed - or the self-employed rate should rise.
Those earning more would have more in the fund - or the contributions should be capped.

But you are quite right. Someone starting off at age 25 earning €100k and working until age 40 is fully funding their OAP and more.

But for most people, I doubt that the 15% covers it.

The 4% paid by the self-employed does not cover it, except for very high earners.

Brendan
 
Brendan Burgess said:
The best solution would be to have an Individual Account system, so that the PRSI paid by you and your employer goes into a pot in your name. The benefits in retirement would depend on what you have contributed.
Click to expand...
That's what private pensions are for!

The contributory state pension is designed to ensure a minimum income in retirement. It's an anti-poverty tool mainly.


That said, I agree there should be ceilings on PRSI contributions.
 
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