Increases to pay related social insurance (PRSI) proposed by the Government are broadly “progressive” in nature, with the burden of higher contributions falling mostly on higher income households, new research has found. Still, further increases will be required after 2028 to deal with projected deficits in the State pension.
The findings are contained in two Economic and Social Research Institute (ESRI) reports published on Wednesday. Researchers examined the impact of the proposed increases to PRSI contributions, which are to be implemented each year from 2024 to 2028 under the roadmap set out by the Coalition last year to combat a widening shortfall in the Social Insurance Fund out of which the State pension is paid.
PRSI rates for all contributors – employers, employees and the self-employed – are to increase by 0.7 per cent by 2028 under the plan.
ESRI researchers found that households on average will see their annual disposable income fall by 0.6 per cent by 2028 as a consequence of the increases. Losses, however, may be steeper if some or all of the proposed increases to employer PRSI are passed on to employees in the form of lower wages, the report’s authors said.
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The proposed reforms will also impact men slightly more than women, according to the research, due to their higher participation rate within the workforce.
Meanwhile, those aged between 25 and 54 will bear most of the burden of the increases, the ESRI said, with smaller income losses for those outside of that age bracket. The reforms will also increase poverty rates by between 0.2 per cent and 0.4 per cent because those aged between 25 and 54 are more likely to have dependent children compared with others.
The reforms are expected to raise a “modest” €209 million in 2024 but revenue generation is expected to pick up momentum in each year until 2028, the ESRI said.
“By 2028 the reforms will raise an additional €1.6 billion per annum,” according to the report. However, given the “relatively slow increases to PRSI envisaged” by the Government’s proposals it is likely that further increases will be needed beyond 2028 to counter a projected deficit in the Social Insurance Fund by 2035. This deficit is expected to rise “exponentially” in the following decades, the ESRI said, due to demographic shifts.
ESRI senior research officer Karina Doorley, an author of one of the reports, said some form of larger PRSI reform recommended by the Commission on Taxation and the Pensions Commission may have to be considered to “avoid unduly increasing the burden on those most affected” by the currently proposed reforms. These include “abolishing or minimising exemptions based on age or income source and equalising the treatment of employee and self-employed income”, she said.
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