Wednesday 7 December 2016

Taxes kick in so low many feel they work for the Government

Anne Marie Walsh

Published 05/09/2016 | 02:30

'With Budget 2017 just weeks away, the prospect of tax cuts will be particularly tantalising for workers who haven’t had a pay rise for ages and probably don’t care where it comes from' Stock Image
'With Budget 2017 just weeks away, the prospect of tax cuts will be particularly tantalising for workers who haven’t had a pay rise for ages and probably don’t care where it comes from' Stock Image

The last eight or so years were tough, but at least most workers who held on to their jobs did not suffer pay cuts.

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However, they have put up with a lot of other impositions that have been chipping away at their salaries - including the Universal Social Charge, water charges and the property tax. So much so, that the latest attempt to get us to pay by weight for bins was thrown out, to be picked up at a later date.

Siptu leader Jack O'Connor argues that wage claims are being driven by frustration after the longest wage standstill in the history of the state, rather than higher taxes.

But it's probably both. A lot of things can fuel pay demands, including the Central Bank rules that mean you must have a massive deposit to buy a modest Dublin home. Or it could be as simple as a worker seeing someone else getting one, and thinking: why shouldn't I?

Any pressure on wages can drive pay demands - and the direct and indirect taxes introduced in recent years have hit the middle-income worker hard.

Marginal rates of tax affect more than half of wages, and kick in at such a low level of pay that Ibec's Fergal O'Brien concludes that, psychologically, many workers feel they are working for the Government. The fact that the Government is not reviewing tax bands and credits in line with inflation and pay growth, as had been the norm, means it is putting anyone that earns more at a disadvantage.

The frustration was obvious this year at the many public-sector union conferences, when State workers who are already getting €2,000 each back under the Lansdowne Road deal demanded that their pay is given back faster.

It is evident in the fact that gardaí and teachers are still not willing to sign up to the deal unless they get more back.

Luas drivers lodged a claim for a pay rise of up to 54pc - albeit over a couple of years - even if many passengers felt they were pushing their luck. Drivers knew the dispute was going to be highly publicised and would be a test case for the whole economy.

There is certainly merit in Mr O'Connor's way of thinking that tax cuts are merely short-termism and we should be investing heavily in public services. There is no doubt that measures to tackle childcare or housing costs could have a huge effect on hundreds of thousands of employees' take-home pay. But it could be a long wait.

With Budget 2017 just weeks away, the prospect of tax cuts will be particularly tantalising for workers who haven't had a pay rise for ages and probably don't care where it comes from.

Ibec tells us that employers of three-quarters of the private-sector workforce are giving pay rises of around 2pc this year. Pay rises are more likely in larger and high-tech companies, where 87pc of employers said they would increase wages.

But there are still a lot of workers whose pay is stuck in a time warp.

The Government has been urging wage restraint by, among other things, making a song and dance out of a measly 10c increase in the minimum wage and a gradual unwinding of public sector pay cuts.

At the same time, it is hammering the workforce with taxes to the extent that there is a disincentive to work, do overtime or get a promotion.

Yet it is one of the chief contributors to rising expectations after promising to axe the USC and talking up the country's economic success. They can't have it every way.

Irish Independent

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