The Deputy will be aware that I have put on record 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.
I would advise the deputy that it is unlikely that a reduction in labour taxation would pay for itself through additional spending in the economy, in the short run. It cannot be assumed that any loss in Exchequer revenue from reductions in income tax or USC would be completely offset by additional indirect taxes that might arise, for example, from additional consumer expenditure, not least because taxpayers might apply their additional take-home pay to saving or to debt reduction. If the resulting shortfall was not made up for in tax increases elsewhere this could jeopardise our goal of reaching a 3% deficit by 2015. Therefore, I have no plans to introduce any income tax changes in advance of Budget 2015, which is scheduled for October next. Given the above concerns, a reduction in income tax at that stage, could only be considered in a scenario where the economy performs strongly enough that such a reduction would not threaten the achievement of the deficit goal outlined earlier and sustainable public finances in the longer term. Notwithstanding the above, I do acknowledge that reductions in labour taxation could have positive medium-term impacts in terms of increased employment.
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 low effective tax rates for low income workers ensures that work pays and is a growth friendly aspect of Ireland's tax system. 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 workers are excluded from the charge to income tax entirely. Furthermore, delivering on a commitment in the Programme for Government, the USC was reviewed by the Department of Finance in the lead up to Budget 2012. As a result of the review of the USC, the Government decided in Budget 2012 to increase the entry point to the Universal Social Charge from €4,004 to €10,036 per annum. It is estimated that this removed almost 330,000 individuals from the charge.