Thursday 29 September 2016

Noonan dashes hopes of significant USC cuts: 'We don't have the money'

Cormac McQuinn, Donal O'Donovan, Shane Phelan

Published 21/09/2016 | 02:30

Finance Minister Michael Noonan. Photo: Damien Eagers
Finance Minister Michael Noonan. Photo: Damien Eagers

Finance Minister Michael Noonan has further dampened expectations of a major cut to the hated USC, insisting it will take five years to phase out completely.

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The minister told TDs that he has limited resources for tax cuts and that "most of what I'd like to do is not affordable. We don't have the money".

And he said taxpayers won't be "throwing their hats in the air on Budget night" given the limited space for tax cuts next year.

Mr Noonan's appearance at the Dáil's Budgetary Oversight Committee came ahead of a warning today by the ESRI against cutting income tax in next month's Budget.

The Finance Minister's attendance at the committee was his first public appearance since his hospitalisation last week for cellulitis.

The effects of the painful skin condition were visible on his face but he told Cabinet colleagues yesterday that he is fit and well.

Read more: Noonan tells of plans to phase out USC over five years in first public appearance since hospitalisation

Mr Noonan said he thinks the USC rate is "too high" but that Fine Gael's plan to abolish it will take five years.

"It will not be possible to phase out USC completely over a three Budget cycle but it would be possible to phase it out over a five Budget cycle," he said.

It's a further indication that cuts to the USC in Budget 2017 won't be the 1pc promised by Fine Gael ahead of the election. Ministers are understood to be leaning towards a reduction in the region of 0.5pc.

Fianna Fáil leader Micheál Martin meanwhile said he doesn't think abolishing the USC is achievable. He added: "We don't believe it's the right policy or the right approach."

Targeted

He favours cuts targeted at low and middle income workers and said there needs to be a balance between investing in services and giving people a break in their taxes.

And the ESRI has warned against income tax cuts in its quarterly statement, saying there is currently no economic case to stimulate demand by boosting take-home pay.

It says the Irish economy is broadly in balance this year and therefore tax cuts or spending increases are not needed.

"Budgetary policy should be neutral. It's important to keep the income tax base as stable as possible as a component of the overall tax base," said Professor Kieran McQuinn.

It emerged yesterday that Irish taxpayers are hit with high rates at lower incomes than workers in other developed countries.

But Mr McQuinn argued that any tax cuts for middle-income earners - including reduced USC rates - should be matched by taking more lower income workers into the tax net, or hitting higher earners.

The ESRI previously told TDs that it's unconvinced USC cuts are wise.

Several other tax measures that may feature in the Budget were raised during Mr Noonan's appearance at the Committee:

■ Vulture Funds

Independent TD Stephen Donnolly said he believes closing tax loopholes used by vulture funds would double the amount available for spending next year - the so-called 'fiscal space' - from €1bn to €2bn.

Mr Noonan has previously said he is moving to stop such firms from avoiding paying tax in property deals.

However, he told Mr Donnelly that his calculation may not come to pass if companies adapt their behaviour due to a change in the law.

"How one would measure future revenue flows is difficult to say because obviously if you close a method of applying a particular tax section people will change their behaviour," Mr Noonan said.

■ Fuel

Mr Noonan says he has no plan to equalise excise duty on petrol and diesel.

Different excise rates mean petrol is currently 11 cent more expensive than diesel. Changing that now would give "a fair shock to the system", Mr Noonan said, adding: "So many people have bought diesel cars."

■ Inheritance tax

An inheritance tax bonanza in the coming Budget has been ruled out.

Mr Noonan said it was the Government's intention to eventually raise the threshold at which inheritance tax applies to €500,000, but it would not be done "all in one leap".

"It is not going to happen in one budget, but I would like to do something on it," he said.

■ Airbnb

Mr Noonan said he is to consider the effect that Airbnb has on the availability of rental properties in his Budget deliberations.

He said that the number or Airbnb rooms is "stacking up" and is one reason for a reduction in rental accommodation in Dublin, particularly for students.

He said that income tax currently applies to earnings from Airbnb but that the issue is "something I want to look at in the Budget".

■ VAT

Mr Noonan signalled he doesn't intend to increase the reduced 9pc VAT rate on hotel rooms in the upcoming Budget.

He noted that hotel prices have been rising, particularly when special events are taking place, but argued that restoring the 13.pc rate wouldn't reduce costs.

■ Condoms

Mr Noonan says he will not drop the 13.5pc VAT rate on condoms as he doesn't believe the move would help reduce STIs.

The VAT rate for condoms was reduced to 5pc in the UK a decade ago.

Irish Independent

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