Burton axes Budget tax bonus for families
Tanaiste shelves plan to give cash boost to workers with children
Published 28/08/2014 | 02:30
Tanaiste Joan Burton has dropped a Labour Party plan for a valuable tax break for squeezed middle-income families with children.
Her predecessor, Eamon Gilmore, put a child tax credit on the table as a key Budget demand from the junior coalition partners to ease the burden for hard-pressed taxpayers.
Mr Gilmore hoped it would win favour with families across the country as Labour struggled to regain support.
However, Ms Burton is no longer demanding the tax measure in the negotiations for October's Budget.
Instead, she wants to cater for low to middle-income families in other ways, such as tax relief and by allowing parents who go back to work to retain a child benefit top up.
Before the local elections, Mr Gilmore suggested a targeted measure aimed specifically at working families with children.
A tax credit is effectively a discount off your tax bill, increasing your net pay. A child tax credit would give a worker with children a larger discount, based on their number of children.
Mr Gilmore saw the expansion of personal tax credits to a specific child tax credit as an option to alleviate the amount of pressure families are under.
But Ms Burton is understood to regard the measure as too complicated and difficult to administer.
"We are not talking about the family tax credit. We always thought of it as a difficult and complex thing to do.
"We feel there are better ways to assist families. It wouldn't be one single initiative," a senior Labour source said.
Government sources say Fine Gael and the Department of Finance were not keen on the child tax credit proposal, as such credits are difficult to target at people intended to benefit.
"The problem with credits is everyone gets them and they are very expensive," a Government source said.
The Coalition wants to see low and middle-income earners benefit from tax relief in the Budget. But it is not yet clear how much money will be available in the tax package or how it will be achieved.
The focus thus far has consistently been on the point at which workers begin paying at the higher rate of tax.
The Coalition is looking at a range of options to target middle-income earners and get them out of the punitive higher rate tax net, which kicks in at €32,800, after which 52 cent of each €1 earned goes on tax.
Although Finance officials have now identified 25 options for tweaking the system in papers prepared for budgetary consideration, the main spotlight will fall on:
• raising the threshold where workers enter the higher rate above the current level;
• reducing the higher income tax rate of 41pc;
• moving around the bands for the USC.
Government sources say the tax package will be made up of more than one element. Tailoring the tax relief to specifically benefit those on middle incomes will be extremely difficult.
The impact on take-home pay will also be limited, but the Government will pitch Budget 2015 as the first in a series where taxpayers get something back.
Ms Burton also sees the social welfare system as a way to help low-income families. The Social Protection Minister plans a double whammy of incentives to make it worthwhile for parents to get off the dole and into work.
Unemployed parents who get a job will be able to retain two key social welfare payments to support families for up to a year, under proposals being finalised.
The Government is looking at so-called poverty traps, which prevent people from taking up low-paying jobs because they will lose welfare benefits.
Movement is expected on allowances paid to parents to help cover the cost of raising their children, which are worth more than €3,000 for a family of two adults and two children. Changes to rent supplement, which is worth an average of €4,500 a year, are also aimed at supporting parents trying to get back to work.
"In addition, we will introduce measures in the Budget to assist low-income families by improving the system of child income supports so that those moving from welfare to work will retain payments for children to ensure that people are better off in work," she said this week.
The Government is also planning to increase access to subsidised childcare and afterschool places by extending eligibility and rebalancing parental contributions for families making their way into employment.
The promise was contained in the Coalition's new Statement of Priorities after Ms Burton replaced Mr Gilmore.
Meanwhile, Fine Gael and Labour appeared to be at odds over calls for pay rises for workers.
Minister for Business and Employment Ged Nash told the Irish Independent yesterday the rise in the numbers of jobs has to be matched by wage hikes for low-to-middle income earners.
"We need to have a wage-led recovery. When the economy improves, workers' wage levels should improve so that they are spending more in the economy to sustain jobs. It's that virtuous circle idea," he said.
But Fine Gael minister Paschal Donohoe said rises in wages would come about through increased levels of employment.
"The figures show that for so many people in our country, their earnings are still declining as a result of the financial crisis we are still in at the moment but doing our best to emerge from. We also saw that the number of people at work is increasing due to the changes and sacrifices people have made.
"What we want to do to get wages back up is to get more people back to work and it's very important that the wage increases that are secured by people as the economy recovers are founded in the genuine recovery of our economy - as the recovery continues, and it will, that it's one that's not put at risk," he said.
Jobs Minister Richard Bruton has also poured cold water on the prospect of wage increases amid fears such a move would pose a barrier to job creation.
"I don't believe the priority now is for wage increases. The priority is to continue to focus on employment opportunities. We have to create the opportunities for enterprises to grow," he said.
The idea of wage increases was strongly opposed by business group ISME, which accused Labour TDs in particular of "fuelling unrealistic expectations of pay rises". Mr Nash's comments came as the number of people employed reached its highest level since 2009, at 1.9 million.