Super-wealthy to be spared new high rate of tax
Related Articles
THE Commission on Taxation has pulled back from recommending a new high rate of tax aimed for the super-rich, the Irish Independent has learned.
This failure by the government-appointed body to call for a new top rate of tax on the super-wealthy is set to cause anger among ordinary workers and trade unions.
There has been sustained criticism over the fact that many of the wealthiest people in the country are able to keep their effective rate of tax as low as 5pc by using aggressive tax avoidance measures.
In response, the Revenue Commissioners and the Department of Finance moved to ensure that the effective tax rate for the very wealthy does not fall below 20pc. It was expected the Commission on Taxation would recommend that the current 20pc and 41pc tax rates would be supplemented with a new 50pc-plus tax rate. The apparent move away from new kinds of tax may mean even deeper spending cuts in December's Budget.
Finance Minister Brian Lenihan has already pledged to raise €1.75bn in additional taxes next year and find €2.25bn in spending cuts as part of the five-year plan to get government finances back in balance. With opposition to a property tax or water charges growing, and no recommendation for a higher income tax rate from the commission, the 'minimum' €2.25bn in spending cuts may have to be increased.
It is understood that departments will be asked to implement more than half the €5.4bn in cuts in the McCarthy report -- or to find alternatives.
While this is likely to be whittled down in the pre-Budget estimates process, Mr Lenihan may have to insist on spending cuts of €2.5bn to meet targets.
Fierce
Most economists would approve of such a shift in focus, based on evidence that spending cuts do less damage to growth than raising taxes.
The problem for the Government is that, when the details of cuts on such a scale are published, the political flak may be just as fierce as for controversial new taxes. Expectations of a new 'rich' tax were raised when plans to bring in a 50pc tax rate were recently announced in Britain.
Introducing a new top rate of tax may have meant that middle-income earners would not end up paying tax at the top rate of 41pc on so much of their income.
At the moment, a single person pays tax at the 41pc rate on any income over €36,400. A couple, if both are working, pays tax at 41pc on income over €72,800. And a couple with just one earner pays the higher rate on income over €45,400.
However, commission members decided against a new higher rate of tax, with the emphasis instead on keeping income taxes relatively low, the Irish Independent has learned.
It was argued that the doubling of income levies in April's emergency Budget meant that high earners were now paying a large chunk of their income over to the taxman.
Anyone earning more than €75,036 effectively pays 53pc of their income in tax and levies.
The commission favours the income levy being eventually removed and taxes, like a property tax and water charges, replacing it. But higher earners will be hit by the recommendation of the commission for the removal of the ceiling on PRSI payments. At the moment workers pay PRSI on income only up to €75,036. The commission wants PRSI paid on all income.
Documents seen by the Irish Independent indicate that the commission also considered, and rejected, introducing a new lower rate of tax to ensure everyone in work makes some sort of contribution. Some 30pc of the population do not pay any tax.
The failure of the commission to recommend a third rate of tax, along with its focus on trying to keep the overall tax burden relatively low, has prompted one member to refuse to sign off on the final report.
SIPTU's Brendan Hayes will not have signed the report when it is handed over to Finance Minister Brian Lenihan in the coming days.
- Charlie Weston and Brendan Keenan
