The Irish Small and Medium Enterprises Association (Isme), has said the methodology used to apply the 1 per cent income levy on lower paid workers will become an obstacle to those who wish to work overtime.
Isme's Chief Executive, Mark Fielding, has said that the decision to apply the levy on the entire income of those earning above the minimum wage would be a "significant disincentive" for those who are on the minimum wage who wish to work overtime.
While welcoming the Government’s decision not to apply the income levy on those on the minimum wage, Mr Fielding said: “In attempting to save their bacon after the fiasco of the medical cards, the Government have somehow managed to get it wrong again by introducing a levy system that disincentivises those on the minimum wage to work overtime when they will be levied on the full amount."
Taoiseach Brian Cowen said today that the 1 per cent income levy on all incomes announced in the Budget will now not apply to those who earn the national minimum wage or less.
However, Mr Fielding questioned the implications for those who earn just above the minimum wage.
"For example an employee on 17,500 is exempt from the levy, but if they earn 1 more the levy is applied to all earnings, incurring an immediate liability of 175. In other words to earn one extra Euro would cost someone 175 times that amount. This is a ridiculous situation and a hair brained proposal, which was only brought in to appease the Unions but has the affect of disincentivising work," said Mr Fielding.
Mr Fielding said the levy should be on income above the minimum wage.
"This would be more progressive than the current proposal and would ensure that at least there was an incentive for those on lower pay to work overtime, which clearly is not the case under the Government proposals."
"The Government are constantly lecturing us about increasing productivity in the economy and in one fell swoop they have turned this idea on its head. Common sense needs to prevail and when the Finance Bill is announced in the next number of weeks it has to rectify this serious anomaly", Mr Fielding added.
Ictu gave a "guarded welcome" to the to the Government decision this afternoon. General Secretary David Begg said: "While we had sought a higher threshold – at €11 per hour as opposed to the €8.65 minimum wage – it is clear that this move will benefit those on the lowest incomes, who have been excluded from the tax net as a matter of public policy for some time now.
