Mary Lou McDonald
Ceist:11. Deputy Mary Lou McDonald asked the Minister for Finance the cost of the commitment to phase out of the universal social charge; and the level of economic risk he attributes to this policy. [10544/16]
Amharc ar fhreagraWednesday, 18 May 2016
Ceisteanna (11)
Freagraí ó Béal (17 píosaí cainte)
A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high, that it is acting as a disincentive for work and investment in Ireland and that I would seek to reduce it as soon as it was prudent to do so.
In the programme for a partnership Government, there is a commitment to ask the Oireachtas to continue to phase out the USC as part of a wider medium-term income tax reform plan that keeps the tax base broad, reduces excessive tax rates for middle income earners and limits the benefits for high earners. Reductions will be introduced on a fair basis with an emphasis on low and middle income earners.
As outlined in the programme for a partnership Government, the reductions in personal tax rates, such as the phasing out of the USC, needed to reward work and support enterprise and employment will be funded largely through: extra revenues from not indexing personal tax credits and bands; the removal of PAYE tax credit for high earners and other measures to ensure the tax system remains fair and progressive; higher excise duties on cigarettes and increased enforcement and sanctions on the illegal importation and sale of cigarettes; increased enforcement and sanctions on fuel laundering; a new tax on sugar sweetened drinks; and improving tax compliance.
The medium-term income tax reform plan is to be published for consultation with the Oireachtas committee on finance in July or August and will be put to the Oireachtas for consideration and approval in October. The plan is being developed over the next number of weeks and, as such, the expected cost is not yet finalised. The Revenue Commissioners have published a ready reckoner on their website, which provides estimates of costings for various tax changes. For example, the full year cost of abolishing the 1% USC rate is €237 million, while the full year cost of reducing the 5.5% USC rate to 4.5% is €348 million.
Additional information not given on the floor of the House
The income tax reform plan will aim to support job creation and reward work which is a key driver of growth and prosperity in the economy. In developing the plan, available resources will be a key consideration along with safeguarding the economic stability of the public finances and the wider economy.
This issue was debated quite a bit during the general election campaign and while there is variance in the programme for Government, it seems the Government is still committed to abolishing or phasing out the USC instead of looking at the issue of tax credits. The Minister is aware from parliamentary questions we have put to him over quite a period now that we have been examining the issue of tax credits while leaving the USC in place.
I believe abolishing the USC is a reckless proposal. We will have opportunities to debate this issue during the Finance Bill and throughout the period leading to the budget. Fine Gael says we can afford to abolish it but we cannot afford it. There is ample evidence across the State to show we cannot afford it. While Fianna Fáil presents the Fine Gael plan as reckless and its plan as great, the idea of taking €3 billion a year out of the tax net through its plan is equally reckless. The Fine Gael plan is just a bit worse. We cannot afford this.
It is actually quite funny to listen to both parties talk about how we need to invent special vehicles so we can spend more money on social housing.
We need to spend more money on social housing but we cannot because we agreed to the fiscal compact, which limits the amount of money we have to spend. However, if one takes €4 billion per year out of the tax net it is further reduced. What is the level of economic risk analysis with regard to this policy proposal in the programme for Government?
Deputy Doherty and I will have to agree to differ on this. It is not the first time we have debated it. It was debated last year and was debated right through the general election. Deputy Michael McGrath's and the Fianna Fáil position is not too far away from the Fine Gael position. He pitched middle-income people as earning less that €80,000 and Fine Gael defined it as less than €70,000. The Labour Party position is not very different either. The three traditional parties, if you will forgive me for calling them that, are in and around the same space.
Conservative.
Sinn Féin is the most conservative party in the House.
Will you stop.
Sinn Féin is not a left-wing party at all. It is a conservative nationalist party.
Can I ask the Minister to resist the temptation to talk about party make-up and stick to the question?
I will not be provoked and will resist the temptation. The best thing I can commit to is ensuring there is a full debate. The Spring Economic Statement will become a summer statement and it should be ready by June. There will be a full debate in the House. I am providing all the text papers to the finance committee so that there will be a full debate on taxation at that point, in advance of the budget.
It is a bit of craic to discuss the question of which party is more conservative than the other, and the marriage between Fianna Fáil and Fine Gael can be part of that banter but this is deeply serious. I sat on the banking inquiry and we saw the graphs. The Fianna Fáil-PD Government of the time cut income tax, the most stable tax available, and it was replaced by other taxes. The USC will bring in €4.6 billion in 2020 and a full debate is nonsense without a full analysis of the costings, etc. The idea of coming in year after year and tinkering with the charge so that it goes after five years is wrong. This is a policy decision that needs proper economic assessment in terms of the risk to this economy.
I believe what Fine Gael and Fianna Fáil are proposing is reckless. If we have learned anything from the last catastrophe this State faced it is that one does not reduce taxes to this level. It may be affordable today because we have a boost in corporation tax and other taxes but it is not affordable in the long term. Every penny we take out of the USC is a penny we are not investing in health or social housing. I ask the Minister to commit to a proper economic analysis of the risks of this policy rather than just a debate in this Chamber.
The fallacy in the Deputy's argument is in the fact that the Government is not committing to reduce the tax take - it is committing to reduce tax rates. We will collect more taxes and the projections for taxes for the next years show that each year the tax take will increase. Within the envelope of additional taxes it is quite affordable to remove an emergency tax-----
That is what happened in the years Charlie McCreevy was Minister. Taxes went up.
We can afford to remove a tax introduced at a time of great emergency. Anybody carrying out an economic analysis will agree that personal tax rates in Ireland are too high and are having an adverse effect on economic growth and activity.
What is the growth rate this year?
The economy is buoyant and we have very strong growth rates.
The USC is still there.
The projected tax take is increasing. For the past two years we have reduced the incidence of USC and that has relieved the burden, especially on low-paid and middle income people.