THE Department of Social Welfare recommends against major changes in the Pay Related Social Insurance system in a confidential document circulated to Government Departments.
The 88 page document which has been seen by The Irish Times, opposes the notion that a reduction in employer PRSI would lead to a substantial increase in employment. It states there is a "strong rationale" for retaining employer and employee contributions.
The document, completed by the Department's planning unit last June, stoutly defends the social insurance system, which it says "plays a key role in Irish life".
It challenges the notion that employers are always at a competitive disadvantage compared to their UK counterparts because they pay higher PRSI rates. It points out that where earnings are between £210 and £250 per week, Irish employers' PRSI is lower than its UK equivalent.
"This benefits the employers of 122,000 of the people covered by Class A Social Insurance. Employer PRSI is also lower than its UK equivalent where earnings are over £31,512 per annum (equivalent to £606 per week). This benefits the employers of a further 43,000 people covered by Class A Social Insurance. Employers' PRSI is lower than its UK equivalent in respect of 16 per cent of employees in Class A PRSI."
The document adds that where employees are concerned, the level of PRSI is lower at all income levels than in the UK. "Taking employee and employer contributions together, PRSI is lower than its UK equivalent at all income levels above £110 per week (£5.720 per annum)."
The document goes on to argue that labour costs "are only one determinant of competitiveness and should not be seen in isolation from the others".
The document states "If it could be shown that reductions in, employers' PRSI would lead to significant employment creation and maintenance, then this might indicate a need for employers' social insurance to be reduced".
While allowing that a general reduction in the level of employer PRSI would reduce "the overall cost environment", the document insists there is "no clear indication that this would generate substantial extra employment".
The low take up of the Employers' PRSI Exemption Scheme also suggested that social insurance was not a barrier to employment. The rates of employer social insurance contributions had come down in recent years and the majority of jobs were now covered by the low rate of employer PRSI, i.e. 8.5 per cent.
The document is also unenthusiastic about suggest ions that "targeted" reductions in employer PRSI be made in labour intensive industries such as clothing. It says that "ring fencing" the clothing sector or even manufacturing as a whole "is very problematic because of definition and equity problems".
Observations from other Departments, in particular Finance and Employment and Enterprise, are being incorporated in a revised version of the document that may go to Cabinet next month.