Dáil Éireann Debate, Tuesday - 8 April 2014
24. Deputy Richard Boyd Barrett asked the Minister for Finance the discussions that have taken place regarding potential income tax reductions and or changes to the USC in budget 2015; and if he will make a statement on the matter. [16154/14]
View answerThe Deputy will be aware that I have stated my belief that the income tax burden is currently too high in Ireland and that I believe it needs to be reduced. However, I have also said that although it is my intention to alleviate the burden I can only do so when the public finances allow it. Lest it has escaped anybody's attention, the general government debt at end 2013 is currently estimated to be just over €200 billion and each year where we incur an annual deficit that figure grows. It is imperative that we, at the very least, are able to meet the interest costs on this debt if this is not to spiral ever upwards. Interest payments are the least productive area of government expenditure and what we currently spend on interest could be put to better use elsewhere.
Although we have successfully exited the EU/IMF bailout this does not mean that we will ever allow a return to past practices where expenditure grew to unsustainable levels while the tax base was simultaneously hollowed out.
The Government remains committed to returning the public finances to sustainability. Under the terms of the Stability and Growth Pact, until Ireland has reached its objective of a balanced budget in structural terms, we may not introduce discretionary revenue reductions unless they are matched by other revenue increases or expenditure reductions. This means that Government must consider carefully any tax changes as any reductions will have to be offset elsewhere.
Having said this, it should be acknowledged that Ireland has a progressive taxation system which ensures that the burden of taxation falls most heavily on those with a higher ability to pay. The latest data from the OECD's 2013 Taxing Wages report shows that Ireland has one of the most progressive income tax systems in the developed world. It is in this context that the Government has committed in the Programme for Government not to increase the marginal rate of income tax.
The Programme for Government also contains a commitment not to change tax credits which at current levels ensure that an estimated 856,000 income earners are excluded from the charge to income tax entirely. The low effective tax rates for low income earners ensure that work pays and is a growth friendly aspect of Ireland's tax system. However against this Ireland has one of the highest top marginal tax rates in the OECD, whilst also having a very low entry point to the application of the top marginal rates. These aspects are less growth friendly due to their negative labour supply incentives.
Recent research from my Department has indicated that growth and employment prospects can be enhanced through a careful rebalancing of the tax system away from labour taxation towards greater use of capital and consumption taxes. Research by the OECD and the European Commission would also support such a rebalancing. These insights are useful given the fiscal constraints to which I have already referred.
It is a little early to consider, let alone set out, changes to the tax system in advance of the Budget, which is just over six months away. As is normal, my officials will model and examine potential options for changes to the tax system for my consideration as part of the overall Budget package.
