herald

Friday 15 December 2017

The six vital things Mr Noonan must do for Budget 2015

Michael Noonan will deliver his first post-austerity budget tomorrow.

With the purse strings loosening he now has the luxury of being able to make choices. Here are the six things the Finance Minister should do in Budget 2015.

l cut Top rate of income tax

As a result of the tax increases of recent years the effective top rate of tax, income tax plus PRSI and USC, now stands at 52pc.

This is causing serious problems. Not alone does an effective tax rate of over 50pc have a huge disincentive effect - who wants to work their socks off if the taxman is going to take more than half of what you earn - Irish-based multi-nationals are privately saying that hitting average incomes with millionaire tax rates is also making it much more difficult to attract overseas workers to this country.

l raise income tax bands

At present a single person starts paying the top 52pc marginal tax rate on all income over €32,800 per year (just €631 per week or €9 less than the average private sector weekly wage). This is madness.

If we are to eliminate the scourge of unemployment - there are still almost 375,000 people signing on the Live Register - then there has to be an incentive for people to take up employment and come off social welfare.

Clobbering below-average incomes with a 52pc marginal tax rate is precisely the way not to do this.

l begin to reduce USC

The real damage to people's pay cheques has been done by the hated Universal Social Charge rather than decreases in the income tax bands.

USC is payable on all income from the first cent and kicks in at a punitive 7pc on all income over €16,000 a year. With USC bringing in a massive €4bn in revenue a year there is no way the Government could afford to scrap it any time soon.

However, it should start to gradually reduce it, starting with the higher 7pc rate, in Budget 2015.

l scrap the pension levy

When it comes to pensions Ireland is an apartheid state. Public sector workers enjoy gold-plated, index-linked pensions while half of all private sector workers have made no provision whatsoever for their retirement.

Then in 2011, in what can only be described as a moment of madness, Mr Noonan (inset)slapped a 0.6pc levy on private sector pension funds and then raised it to 0.75pc last year.

This was supposed to be a "temporary" measure but, like all taxes the government has grown fond of the pension levy and the more than €600m it brings in every year to the exchequer.

Any revenue gained now from the pension levy will be dwarfed by the long-tern costs to the state of providing post-retirement incomes to private sector workers.

l keep cutting budget deficit

The Government is committed to reducing the budget deficit to less than 3pc of GDP in 2015. With 2014 tax revenues now likely to come in more than €1bn above target, Mr Noonan should be able to achieve a sub-3pc deficit without breaking a sweat.

He should go further, much further. Even with the deficit at 3pc of GDP, the Government would still be borrowing €100m a week on our behalf next year. With the Irish state already owing €210bn, Mr Noonan should be using at least some of the higher-than-expected tax revenues to reduce the deficit even further.

l KEEP THE public sector pay cuts IN PLACE

Despite the public sector pay cuts of recent years, average public sector pay, at €919 per week, is still 48pc higher than average private sector pay.

Irish public sector workers are also much higher paid than those in other countries - a whopping 40pc more than their UK counterparts. Michael Noonan and Brendan Howlin should ignore the threats and leave the public sector pay cuts in place.

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