Home » Why Ireland’s Income Protection Tax Relief Revenues Are Declining

Why Ireland’s Income Protection Tax Relief Revenues Are Declining

by Jan Sher

Last year, Ireland’s Department for Social Protection paid out a whopping €4.8 billion in Income Protection Tax Relief – the highest ever to date. However, due to a change in public opinion on the scheme and some recent legislative changes, experts are predicting that the next round of payments will fall by at least €1 billion.

The Decline of Income Protection Tax Relief Revenues

In Ireland, income protection tax relief revenues have been declining in recent years. This is due to a number of factors, including the introduction of the universal social charge (USC), the abolition of the health levies, and the increased use of health insurance products that are not subject to income tax.

The USC was introduced in 2011 and is a flat-rate tax on all earned income. The rate of USC is 4.5% for those with an annual income of €13,000 or less, and 8% for those with an annual income of €26,000 or more. The USC has had a significant impact on the income protection tax relief revenues, as it has reduced the amount of taxable income that can be offset against premiums paid for income protection policies.

The health levies were abolished in 2014 and replaced with a new system of health insurance premiums that are not subject to income tax. This has also had a negative impact on the income protection tax relief revenues, as fewer people are now able to claim a deduction for their premiums paid.

In addition, there has been an increase in the use of health insurance products that are not subject to income tax. These products, such as private hospital cover and dental insurance, provide cover for expenses that would otherwise be covered by the state-run health service. As a result, fewer people are claiming deductions for their income protection premiums, further reducing the revenue from this source.

The Causes of the Decline in Income Protection Tax Relief Revenues

There are a number of reasons for the decline in income protection tax relief revenues in Ireland. Firstly, the number of people in employment has decreased significantly since the onset of the recession in 2008. This has resulted in fewer people paying into income protection policies and, as such, there has been a decrease in premiums collected.

In addition, the government has introduced a number of measures over the past few years which have reduced the amount of income protection tax relief that is available. For example, the threshold for qualifying for income protection tax relief was reduced from €75,000 to €50,000 in Budget 2013. As a result of these changes, fewer people are now eligible for income protection tax relief and this has contributed to the decline in revenue.

Potential Solutions to the Decline in Income Protection Tax Relief Revenues

There are a number of potential solutions to the decline in income protection tax relief revenues in Ireland. One option is to increase the amount of money that is set aside each year to cover the cost of income protection insurance. Another option is to raise the age limit for income protection tax relief, which is currently set at 65 years.

Another potential solution is to change the way that income protection tax relief is calculated. Currently, the relief is based on the premiums paid for the policy, but it could be linked to the amount of benefit paid out under the policy. This would encourage people to take out policies with higher levels of cover, which would provide more protection in the event of an illness or injury.

Finally, the government could consider introducing a new type of income protection insurance that would be specifically designed for self-employed workers. This could include features such as automatic renewal and a lower age limit for eligibility, which would make it more accessible for this group of workers.

Conclusion

It’s no secret that Ireland’s income protection tax relief revenues have been declining in recent years. There are a number of reasons for this, but the most significant one is likely the country’s changing demographics. As the population ages, fewer people are working and paying into the system, while more people are retired and drawing from it. This trend is only expected to continue in the years ahead, so it’s clear that something needs to be done to shore up Ireland’s income protection system. Otherwise, the country faces a very real risk of not being able to meet its future obligations.

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