In analysing the economy and in producing economic forecasts, my Department models household disposable income in aggregate terms and projects how this income is allocated between spending and savings. The impact of these decisions on tax revenue and employment is also modelled. In relation to the specific example, when discussing the merits of such a measure it is important not to lose sight of the current fiscal position. Despite the considerable progress made in recent years, Ireland’s budget deficit remains one of the highest in Europe. In this context the opportunity cost of any large-scale revenue stimulus would be considerable. Moreover, any revenue shortfalls would have to be made up from alternative measures in order to continue to meet our deficit targets.
It should be recalled that Ireland is a small, open economy with imports accounting for over three quarters of GDP. It is therefore likely that a considerable amount of additional household expenditure would leak out through an increase in imports.
Finally I would say that while there is a clear need to address the fiscal imbalances of the State, this Government is cognizant of the pitfalls of excessively taxing labour. Reflecting this, the Programme for Government contained commitments to not increase the income tax rate and Budget 2014 included no increases in income tax or the Universal Social Charge. This, I feel, further demonstrates our commitment to encouraging labour supply and supporting employment growth into the future.
