Noonan pushing for more spending cuts to deliver tax relief
FINANCE Minister Michael Noonan will adopt a hardline in next year's Budget talks with the Labour Party and push for cuts to income tax to be the priority.
Mr Noonan is to push for two-thirds of the monies to fund the economy to come from spending cuts, and final third from tax hikes, with a separate package of tax relief.
Labour wants the level of spending cuts to be reduced dramatically first and foremost "to save the Blueshirts from their worst instincts".
The junior coalition party is also in favour of tax relief, but is insisting on minimising spending cuts being the priority – before tax cuts are even looked at.
The adjustment required in Budget 2015 is expected to be closer to €1bn, rather than the planned €2bn, but the final figure won't be apparent until later in the year.
Mr Noonan has been pledging tax cuts to remove middle income earners from the higher rate by widening the tax bands.
"It depends on how much you have to play with. You can go for a headline cut to a rate or messing around with the bands and moving the threshold. That's where there will be a fair amount of haggling," a senior Government source said.
In the Budget talks, Mr Noonan will seek a 2:1 ratio of cuts to taxes in the adjustment, with a separate package of tax relief.
"We'll be pushing for two-to-one on expenditure to tax in terms of how the adjustment is divided up. It slipped a bit in the last few Budgets. That's where we'll start from. There has to be something on the spending side. You're coming to the end of the line on taxes," a Government source said.
Government sources point to funds to maintain the VAT cut in this year's Budget coming from savings found elsewhere.
The tax cuts package in next year's Budget is expected to go along similar lines, outside of the normal adjustment of tax hikes and spending cuts.
"It would nearly be subject to a separate discussion," a government source said.
Labour is concerned about the impact of spending cuts. The party believes the spending cuts in health, social welfare and education have caused a lot of the Government's problems, with the medical cards review cited as the prime example.
Labour figures argue the party is strongly in favour of tax relief for low- and middle-income earners – but has to stop the spending cuts.
"We want to save the Blueshirts from their worst instincts. Imagine, for example, how a mini-tax bonanza would play out if the Budget also leads to hospital ward closures, class size increases and more cuts to carers," a Labour source said.
The level of wriggle room the Government will have will be dependent upon the continued growth of the economy.
At the moment there is a possibility of the tax take being €1bn over target and PRSI bringing in an extra €300m.
However, health spending will run €500m over the estimate and water charges are expected to swallow up another €70m and other spending is also taking €70m.
Fine Gael wants tax cuts to be a strong feature of the next two Budgets, particularly targeting those on middle incomes who hit the higher rate of tax.
At the moment, anyone earning over €32,000 hits the 52pc marginal rate of tax. The 52pc rate is one of the highest marginal tax rates in the OECD, well above the average of 36pc.
While the top marginal rate kicks in at just over €32,000, in Britain it starts at €180,000. Employers argue the high personal tax rates make it harder to attract and retain top talent.
Labour wants to move on the USC and increase incomes for those on low pay and the minimum wage.