Wednesday 26 April 2017

Kenny at odds with Varadkar on tax cuts as he points to pay rises

Mr Kenny’s prognosis is at odds with the tax-cutting plans of his likely successor, Leo Varadkar. Photo: Tom Burke
Mr Kenny’s prognosis is at odds with the tax-cutting plans of his likely successor, Leo Varadkar. Photo: Tom Burke
Colm Kelpie

Colm Kelpie

Taoiseach Enda Kenny is blaming upcoming public sector pay hikes for a lack of funds to cut income taxes.

But Mr Kenny's prognosis is at odds with the tax-cutting plans of his likely successor, Leo Varadkar, the favourite to become the next Fine Gael leader.

And even Finance Minister Michael Noonan admits economic performance could allow for a softer budget.

Mr Kenny has warned the year ahead will be "tight" for the public finances and signalled difficulties in being able to cut income tax rates.

The Taoiseach said ministers are "committed" to legacy issues such as public sector pay agreements, and warned that demands and expectations are rising.

He was challenged on the Government's failure to cut income taxes at a Fine Gael meeting on Brexit this week.

"We have to have a tax offering that's stable, that's transparent, that's competitive, so when you look at the issues facing the minister for public expenditure and reform and finance this year … and all of the issues around that table will have to be dealt with, in what will be a tight year from 2017 to 2018," he said.

"There are legacy issues there of a very substantial issues that ministers are committed to, the consequences and the success of the Lansdowne Road Agreement, the public pay talks have to take place, the demands and the expectations that are rising.

"So while in theory Government would like to be able to have a much more favourable tax rate, there are serious issues to be considered by Government in that regard," he said in reply to a questions at a meeting in Clane, Co Kildare.

Yet the same day, Mr Noonan even indicated a softer budget in 2018 is now on the cards.

Economic growth this year is running well ahead of the forecast when this year's Budget was set back in October.

"There will probably be some additional funds available from the extra growth," he said on Monday.

The official Department of Finance forecasts for economic growth have been lifted to 4.3pc this year - up from the previously expected 3.5pc. Growth in 2018 is now tipped to be 3.7pc.

The big change is Brexit, which forecasters thought would have hit the Irish economy harder by now.

Mr Noonan said the adjustment made [to the forecasts] for Brexit didn't come through.

Neither Mr Kenny nor Mr Noonan are expected to be in the Government when Budget 2018 comes around in October

The Taoiseach is supposed to stand down by the summer and Mr Noonan is expected to not be included in the next Cabinet - either standing aside or being dropped.

Mr Varadkar is the leading contender to become Taoiseach and has signalled his plans to cut taxes for middle-income earners if he takes over.

The Social Protection Minister acknowledges the level of income tax they pay is unjust and says it is driving our qualified professionals overseas.

"Taxes should be low, simple and fair," he wrote in the Irish Independent last month. "High tax rates make it harder to attract skilled, qualified and talented people home from London and from other countries, and it is one of the push factors that causes our homegrown doctors, IT professionals and others to take opportunities elsewhere."

Mr Varadkar vowed to reform the Universal Social Charge, bring down the marginal rate of tax below 50pc and raise the entry point at which workers begin paying the higher tax rate of 40pc, which is currently set at €33,800.

Meanwhile, employers group Ibec has dismissed as meaningless an international study that claims Ireland is a low income tax country.

The Organisation for Economic Co-operation and Development (OECD) claimed income tax in Ireland is comparatively low.

Irish Independent

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