Taxation: Fears that the introduction of tax individualisation would force large numbers of married women back into the labour force are unfounded, according to research to be presented at today's ESRI conference.
In December 1999, the Minister for Finance, Mr McCreevy, was forced to back down from proposals to introduce tax individualisation following a public and political outcry. He had proposed the scrapping of the doubling of tax-free allowances for single-income families where one spouse was not a wage earner.
Critics of the policy claimed that married women would be forced into the workforce to make up for the loss of family income.
The research has found that the impact of full individualisation would be limited. It would be significantly more efficient than simple income tax cuts in terms of encouraging people into the labour force.
According to Prof Tim Callan of the ESRI, the main author of the research, the impact of large income tax cuts is quite limited in encouraging people back into the labour market.
"We found evidence of a link between income tax cuts and employment growth, but the strength of that link may not be as great as has been supposed."
The research found that the 15 per cent cut in the standard rate of income tax between 1987 and 2001 led to a rise in the labour force participation rate of between two and three percentage points.
The compares with a change in tax policy to full tax individualisation which would lead to a participation rate rise of up to 2.5 per cent among married women. This change would have no decrease on Exchequer returns, with the revenue raised from individualisation being ploughed back into child benefit or tax cuts.
The research also highlighted the impact of individualisation on the participation rates of married women in the labour force as being limited. It pointed out that this rate has increased by 30 per cent since 1980 due to a range of factors "including rising real wage rates, higher education levels and social trends".