Finance minister defends changes to taxes on pandemic payments scheme
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The finance minister has defended changes to tax payments on pandemic employment supports, saying it's aimed at ensuring people don't face a big tax bill at the end of the year.
People receiving the pandemic unemployment payment (PUP) who return to work in 2021 have to pay all the income tax due on the payment this year, while those on PUP last year have four years to settle their bill.
The change by the Revenue Commissioners, announced on Wednesday, will likely put more financial strain on people on the payment, many of whom are already under pressure.
Those going back to work this year will effectively lose tax credits, reducing the portion of their income that is tax-free.
Finance Minister Paschal Donohoe said he was "very clear that the PUP was taxable" and the Government wasn't in a position to tax it at the time, because "we created the payment in an emergency".
He said:
"In order to avoid that happening again, it will be taxed as we go normally through the year to try to avoid any creation of a big bill pending."
Mr Donohoe said the scheme is vastly different from the one in place a year ago, with four different rates of payment at €200, €250, €300, and €350.
"If you're on €200, €250, €300 rate, it's very likely that the value of your tax credits on a weekly basis will actually be less than the value of PUP payments that you're getting, which means that you will not have any additional tax liability if you go back to work," he said.
"On the €350 payment, somebody had been unemployed from the start of January to the start of May this year, it's likely that the additional tax liability that they would have from May onwards will be between €130 and €140.
"We tax jobseekers' payments and it's therefore appropriate that the same happened with the PUP, but I understand the concern about a big bill at the end of the year.
"We did deal with that last year, and in an effort to avoid it for this year, that's why the Revenue Commissioners are collecting tax."
The 2% lower rate of Vat will also end at the end of this month.
"When we brought in the lower rates of the use of a Vat, the aim of bringing in lower rates for a fixed period of time was mainly to support our retailers who were under such pressure because of either being closed or having a very low level of trading," Mr Donohoe said.
"What has changed since then is we've brought in the Covid restriction support scheme (RSS) that we launched in October.
"That is an additional way of supporting either closed retailers or retailers with a very low level of trade."
Mr Donohoe said the Vat change was a temporary measure, costing €440m for the number of months it was in place:
"The new scheme that we have has paid €230m already. It is a more targeted scheme, and a more effective use of our money," he added.
"Even with the budgetary flexibility that we do have — we are this week, for example, supporting a million of our citizens through income payments — I believe that we can make more effective use of hundreds of millions of euro."
The 9% Vat rate with regard to the hospitality sector will remain in place until November 31.