Terence Flanagan
Question:7. Deputy Terence Flanagan asked the Minister for Finance his plans to help the squeezed middle in future budgets; and if he will make a statement on the matter. [4702/15]
View answerWednesday, 4 February 2015
Questions (7)
Oral answers (6 contributions)
Will the Minister outline his plan, as recently reported in the media, to help the coping classes or those middle-income earners between €32,800 and €70,000? Does the definition include households or does it refer only to individuals earning that income?
I thank the Deputy for his question. As he may be aware, I am of the view that a fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said the burden of the income tax system in Ireland is too high. I also said I would seek to reduce it as soon as it was prudent to do so. The identification of the squeezed middle as those earning between €30,000 and €70,000 was an important step.
In the 2015 budget I reduced the top rate of income tax from 41% to 40%. I also extended the standard rate band in which income tax is chargeable at the lower 20% rate by €1,000. These measures ensure all those earning in excess of €32,800 per annum will benefit from the income tax changes in the budget. In addition, I reduced the two lower rates at which the universal social charge, USC, was payable from 2% and 4% to 1.5% and 3.5%, respectively. This ensures people on lower incomes who do not pay income tax also benefit from the budget. Furthermore, I also increased the threshold before which the 7% rate of USC becomes payable to €17,576; as a result, those on the minimum wage will now only be liable to a maximum 3.5% rate of USC. I also retained the exemption from the top rates of USC for medical card holders and those over 70 years with incomes that did not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%.
Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the budget also contained measures to limit the maximum benefit of the tax package to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent as those with more modest incomes. The changes announced in the budget took effect last month and have resulted in a reduced tax bill for all those paying income tax and USC.
Additional information not given on the floor of the House
The tax package announced in the budget is the first stage of a tax reform plan to be undertaken over a number of years to reduce the tax burden, particularly for low and middle-income earners. My Department estimates that a reform plan along these lines over three years will create up to 15,000 jobs when the full effects of the changes have taken hold in the economy. I propose to continue to reform the income tax system in this manner in future budgets, subject to the required economic growth and the consequent fiscal space being available to the Government.
I thank the Minister for his response. What steps are he and the Minister for Public Expenditure and Reform taking to keep costs down for all households, particularly State-controlled costs? Households and, in particular, employed persons are paying major taxes, including new taxes in recent years such as the property tax and water charges, as well as the dreaded USC. The most expensive outgoings for households are child care costs and mortgage debt payments. What measures will the Minister take to specifically help those with high child care costs? Recently, the OECD indicated that a family in Ireland with two children would spend 40% of its average wage on child care costs. This amounts to over €2,000 per month to keep a baby and a toddler in child care facilities. What is the Minister doing to target this issue?
A series of supplementary questions have been put by the Deputy. The Government's target for procurement costs is to save €150 million this year, a very significant saving. The Deputy is aware that the cost of energy has come down dramatically. The budget was built on a Brent oil figure of €105 per barrel, but it is now at €43 or €44. The Government's policy is to ensure these savings are passed to the consumer. The same would apply to heating oil.
Child care is one issue that is putting a structural obstacle in place of full participation by women in the workforce.
It is an issue currently being examined by my Department. Primary responsibility for this matter lies with the Minister for Children and Youth Affairs, with whom I have already had discussions on the issue. It is easy to identify the problem but difficult to arrive at a solution. However, we are working on it.
The Minister will be aware that Ireland is the most expensive country in the world in terms of child care costs. This is an area that requires targeted action. This Government and previous governments have failed ordinary working people in not taking targeted action to address child care costs.
On mortgage debt and variable interest rates, some banks are charging new customers a lower variable interest rate than that which they are charging their existing customers. Perhaps the Minister will say if there is anything further he can do in regard to this matter which would provide people with hope, particularly those people who have had to pay high taxes in recent years and are badly squeezed.
The policy instrument available to me to assist the so-called squeezed middle is the taxation system. I have outlined for the Deputy what I have done in terms of income tax and USC reductions through the budget. I also said in my Budget Statement that I would follow the same line of policy in the next budget, subject to the availability of resources to do so.
The Deputy has raised many issues which are not in the same space. While very important, many of them are the responsibility of other Ministers. The Deputy has material for a series of parliamentary questions.