Tuesday, 10 June 2014

Questions (175)

Alan Farrell

Question:

175. Deputy Alan Farrell asked the Minister for Finance based on the 2013 budget, the income that would be generated from tax collected from PAYE employees and self-employed persons if a 1% income tax cut was implemented; the extent to which the revenue generated through such a measure differs from the projected tax take if such a tax cut were not implemented; and if he will make a statement on the matter. [24453/14]

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Written answers (Question to Finance)

I am informed by the Revenue Commissioners that the full year cost to the Exchequer, estimated by reference to 2014 incomes, of decreasing the standard rate of Income Tax by 1 percentage point from 20% to 19%, would be approximately €453 million.

These figures are estimated from the Revenue tax forecasting model, using actual data for the year 2011 adjusted as necessary for income, employment and self-employment trends in the interim. They are provisional and may be revised.

I assume the deputy is enquiring as to the revenues that would be generated from consumption taxes across the economy as a result of any extra spending that might occur as a result of such a cut in income tax. It is not possible to estimate such a figure. However, 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.