Sunday 23 October 2016

Taoiseach Enda Kenny promises massive tax cuts to bring Ireland into line with low-tax countries

Pre-election pledge puts FG on course for Labour clash

Published 20/12/2015 | 02:30

Enda Kenny. Photo: Niall Carson/PA Wire
Enda Kenny. Photo: Niall Carson/PA Wire

Taoiseach Enda Kenny has promised to slash income taxes across the board to bring Ireland into line with low-tax countries such as America and Britain.

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The dramatic pre-election pledge only weeks before Mr Kenny goes to the country will, if implemented, cut the personal tax burden of Irish workers by thousands of euro a year.

A recent study showed that US workers earning €75,000 pay almost €10,000 less tax than Irish employees earning the same, while in the UK they take home an extra €6,000.

However, Mr Kenny's planned tax cuts are at odds with the influential Economic & Social Research Institute (ESRI) think-tank which last week warned the next Government against splurging on tax cuts and spending in the coming years.

And last night, the latest national opinion poll showed Fine Gael up one point to 32pc and Labour up two on 9pc - giving the Coalition 41pc of the vote heading into next year's election.

But after the Sunday Independent first revealed the Coalition war over voters on low pay, Fine Gael and Labour are now set to clash over Mr Kenny's plan to radically reduce personal taxes.

The Taoiseach's proposal will face especially strong resistance from Tanaiste Joan Burton, who last week demanded that high-earners shoulder the majority of the tax burden and insisted Lab-our will cut the Universal Social Charge (USC) for workers earning less than €70,000.

However, during a private briefing, Mr Kenny insisted that the first step in competing for jobs with low-tax countries is to abolish the hated USC "over the next six Budgets".

The Fine Gael leader said it is "essential" that Ireland competes with low-tax countries before naming Britain, the US, Australia and Canada as our main competitors.

"If we want to compete with other lower-taxed countries we have got to be able to make a similar offer ourselves, and that is why it is absolutely critical that the forward mom- entum of the Irish economy be kept going," Mr Kenny said.

Pushed on how low he is prepared to cut taxes, he said: "We want to have taxes as low as we can afford to have them." However, he added that the Government will not go on a "binge that we cannot afford".

A study by the Irish Tax Institute found Ireland has extremely uncompetitive personal tax rates compared with international counterparts.

The report found a US employee earning €100,000 paid €13,681 less tax than an Irish worker last year.

And British workers earning €150,000 paid almost €25,000 less income tax than people earning the same amount in Ireland.

The study found that Ireland's tax regime lags behind other countries because the entry point for the marginal rate tax is exceptionally low at €33,800.

From January 1, the margin- al rate of tax will be around 49.5pc.

The entry point for the marginal rate of 45pc in the UK is more than €200,000, though there is also a middle 40pc rate for workers below that amount and more than €43,570.

The main focus of the Taoiseach's bid to compete with low-tax countries is to lure home Irish emigrants who were forced to leave during the recession.

It is also hoped that low taxes will serve as an attraction for high-skilled international workers seeking employment in Ireland's growing technology industry.

These tax cuts would also apply to Irish workers.

Mr Kenny said the "lure of home" is very strong for Irish emigrants, and he hopes those who return for Christmas will "reflect on the changed and enhanced circumstances" of their friends and families in recent years.

However, in a further sign of the growing divide between the Coalition partners, Tan-aiste Joan Burton last week insisted Labour will continue to tax higher-earners if voted back into government.

The Labour leader re- affirmed her pledge to only cut USC for workers earning up to €70,000 and insisted she wants those earning more to contribute more taxes to pay for the less well-off.

"People on, say, €140,000, €200,000, they will benefit from the reductions in the USC, but they're not going to benefit more than somebody who's on €70,000," she said. "It's not that they're getting no benefit, but they're not going to get more benefit than people on middle incomes."

As the Coalition partners locked horns over election promises, the ESRI sent a stark warning to future governments planning on slashing taxes and pumping funding into spending.

ESRI associate research professor Kieran McQuinn said the economic growth showed there is "very little if any role" for stimulating the economy with tax beyond next year.

"We may reach a position where we may even need to start thinking about targeting surpluses as a way of taking some heat out of the economy if it continues to grow as robustly as it has in the last two years, and it may well in 2016," said Prof McQuinn.

Meanwhile, a Red C Sunday Business Post poll showed Fine Gael up one on 32pc, Labour up two on 9pc, Fianna Fail down two to 17pc and Sinn Fein up one to 19pc.

Independents are unchanged at 14pc, Anti-Austerity Alliance-People Before Profit is down one to 3pc. Renua is up one on to 2pc, Social Democrats are down one to 2pc and the Green Party is unchanged at 2pc.

Sunday Independent

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