Wednesday, 19 June 2019

Questions (24)

Pearse Doherty

Question:

24. Deputy Pearse Doherty asked the Minister for Finance his plans to increase the threshold for entry to the higher rate of tax to €50,000; the estimated cost of this measure; and if he will make a statement on the matter. [25823/19]

View answer

Oral answers (6 contributions) (Question to Finance)

It is now six months since the Taoiseach at the Fine Gael Ard-Fheis pledged to increase the threshold to €50,000 for people entering the higher rate of tax. For a couple this would be €100,000. The package is estimated to cost anything between €2.3 billion and €3 billion, and the Taoiseach has committed to doing it within five years. Given the discussion we have just had on the volatility and vulnerability of corporation tax receipts and climate change agenda, is the Minister for Finance still certain that type of commitment to deliver this over five years can be fulfilled? The climate change report is uncosted but it will need significant spending. Will the process of delivering on the commitment begin in this year's budget?

Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution along with our social welfare system. Our redistributive tax system has been acknowledged internationally by both the International Monetary Fund and the OECD. However, it is the Government’s position that workers start to pay too high a rate of income tax at too low an income level. We cannot hope to remain competitive if someone on a relatively low income and who decides to work a few hours overtime has nearly half that extra money taken in tax. Therefore, in last year’s budget I once again increased the entry point to the higher rate of income tax for all earners by €750 and reduced the third rate of universal social charge from 4.75% to 4.5%. The impact of these changes is that the top marginal rate on incomes up to €70,000 has been reduced to 48.5% and fewer people on incomes around the national average will have any income subject to the 40% rate of income tax. This is steady progress in reducing the income tax burden for low and middle income earners.

As I have stated on a number of occasions, I plan to continue this progress in the coming years within available resources by concentrating on increasing the level at which workers pay the higher rate of income tax. An increase to the standard rate cut-off point would cost €460 million per annum over five years. The implementation of such a change would need to be delivered year-on-year to take account of our economy's performance. This would have positive consequences for businesses and jobs in the domestic economy and I am committed to measures that positively benefit workers while also keeping the tax base broad.

I thank the Minister for his answer but it is unclear so I will reiterate my question. A clear commitment was given by the Taoiseach in front of all the television cameras, although I am not sure if he discussed it with the Minister before making it to the people watching at home. The commitment is clear and it is to increase the threshold to €50,000 within five years. It would mean that what the Minister did in last year's budget would need to significantly accelerated each year over the next five years. As has been pointed out, this would equate to approximately €2.5 billion of tax forgone to the State when we all know there is much pressure on public services, housing, health areas like home care packages and the cost of childcare and insurance, etc. There is no doubt that tax cuts would benefit some people but there are other pressures. In addition, the Irish Fiscal Advisory Council has indicated that between €3 billion and €6 billion cannot be relied on and it is above economic activity in the State in the medium term. A serious plan has been made out on the climate change agenda with no costing but it will no doubt require a serious investment in the next and every other budget if we are to meet targets.

Will the Minister indicate if the commitment is as clear as the Taoiseach outlined to increase the threshold to €50,000 within five years? For a married couple the threshold would be up to €100,000. Does the Minister believe it is affordable and we can give those kinds of tax cuts?

I reaffirm what the Taoiseach said, which is that if the economy continues to grow, the resources will be there to make a change like that. We can look at the funding generated each year through the non-indexation of the tax code, with approximately €500 million made available to do tax reform and reduction. As the Deputy knows, we are looking to move the tax thresholds in line with income growth.

What happens in the approaching budget will depend on the negotiations I have with Deputy Michael McGrath and Fianna Fáil. Up to this point we have been able to make progress on changes in the universal social charge and the standard rate cut-off point, both of which have been progressive and are affordable.

I can answer the Deputy's question. The Taoiseach made clear that as long as resources are available within the economy, and our economy is growing, it is possible to make progress towards reducing the standard rate cut-off point every year.

We are all familiar with the election posters about abolishing the USC but it has not been abolished. The thresholds have been increased and the rates cut but it still brings in an amount in excess of €4 billion. It has not been abolished.

The reality is that if the Government goes ahead with this type of package, which amounts to approximately €3 billion over a five-year period, it will be taking resources from other areas which badly need them. The Government has plans for economic growth in the next year. Even when we park the potential consequences of Brexit and the issues of climate change, the money is not there to provide for the types of services that we need. Given the demands that exist for home care packages, infrastructure development and other needs in our economy, that type of tax-cutting agenda in a single area is simply not possible within a five-year period. Can the Minister clarify whether he was involved in the discussions before the Taoiseach made that announcement?

I was involved in all of the discussions about this, as one would expect me to be on any of the discussions about income tax policy or broader tax policy. The Deputy is correct to say that there are many competing pressures on the Exchequer currently but in many areas of public expenditure levels of expenditure and recruitment are equal to those in the pre-crisis period and in some case ahead of those levels. When I look at the trends within our economy I see that if we do not move our tax structure in line with income growth, a situation will develop whereby more low income earners will end up paying the higher rate of income tax. This is why I believe this is a targeted, focused change. Resources are available and I will be taking account of Brexit. I will talk to the House about a disorderly Brexit and other scenarios next week. I re-state that all of our commitments from a tax point of view and otherwise depend on an economy that is performing well, a degree of economic growth and, as long as that is there, I believe it is possible, year after year, to make progress on this objective.