'81 per cent' tax rate to clear deficit
The big tax hikes unveiled by Finance Minister Brian Lenihan in the emergency Budget have just kicked in -- but it could take an 81 per cent top tax rate to clear the gaping hole in our public finances.
The Exchequer deficit for the first four months of 2009 was €7.3bn. This shortfall could climb to €21.69bn by the end of this year, according to the Economic and Social Research Institute (ESRI).
Were the Government to rely on income tax alone to plug this €21.69bn gap, it would have to raise the standard tax rate from 20 to 50 per cent, and the top rate from 41 to 81 per cent, according to Jim Power, chief economist with Friends First.
"Such an increase in the tax burden would, however, destroy consumer spending, lead to soaring unemployment, and the deficit in 2010 would exceed €50bn," said Mr Power.
Were the Government to tackle only 10 per cent of the €21.69bn shortfall, it would have to raise the standard tax rate to 23 per cent, and the top rate to 45 per cent, while leaving the current health and income levies in place, said Dan McLaughlin, chief economist with Bank of Ireland.
The chances of an 81 per cent tax rate are slim. However, within three years, the Government could introduce a 55 per cent tax rate for those earning more than €120,000, hike the standard rate to 24 per cent, and increase the top rate to 48 per cent, said Alan McQuaid, chief economist with Bloxham Stockbrokers.
In a report just published a British think-tank, the National Institute for Economic and Social Research, said that Britain's basic income tax rate would need to be raised from 20 to 37 per cent to get its public debt under control within a decade.
- LOUISE McBRIDE
