independent

Monday 21 April 2014

Taoiseach pressures Noonan to cut taxes for middle-income families

Fine Gael leader Enda Kenny and  his  Finance spokesman Michael Noonan  at  the launch of the Fine Gael  fiscal plan yesterday.Pic Tom Burke 10/1/11
Taoiseach Enda Kenny and Michael Noonan

TAOISEACH Enda Kenny and Jobs Minister Richard Bruton are piling the pressure on Finance Minister Michael Noonan to deliver tax cuts for middle-income earners in next year's Budget.

But Mr Bruton is also warning that income taxes for high earners will have to be cut in the future to attract business people who create jobs.

"Over time, we have to make sure we are competitive in these areas. Obviously in sectors where there is a war for talent, the talent has to feel it's well remunerated, so that obviously is a consideration that has to be factored in," Mr Bruton said in an interview with the Irish Independent.

In his first comments on the prospects of tax cuts, Mr Kenny confirmed the first round of income tax cuts will be directed towards hard-pressed families.

"The priority will be to reduce the very high tax rates faced by families on middle incomes," he said.

The Taoiseach indicated that a reduction in the income tax burden was a possibility in Budget 2015.

"There will be no income tax increases in the next Budget. That is consistent with the Programme for Government," he said.

"The scope for any income tax reductions, which I have seen commented on, will not be known until much closer to the Budget and they depend upon growth rates and job opportunities.

"But whatever job opportunities are available, the priority will be to reduce the very high tax rates faced by families on middle incomes.

"So whenever that flexibility comes, that will be a priority," he added.

Mr Kenny also said the Government expected the report of the Advisory Group on Tax and Social Welfare by April.

"That's likely to focus on family income supplement, on child income supports and rent supplements, and on barriers faced by part-time workers moving into full-time employment," he said.

Mr Bruton backs up Mr Kenny's view that the priority initially has to be the low level where workers hit the higher rate of income tax.

A single worker in Ireland starts paying the higher income tax rate of 42pc, plus 4pc PRSI (Pay Related Social Insurance) and 7pc USC (Universal Social Charge) on any income above €32,800. The lower rate is 20pc.

The combined effect creates a marginal income tax rate of 52pc, meaning a worker only takes home 48c of every €1 they earn above €32,800.

The Jobs Minister also said that international executives who create jobs have to feel they are well remunerated to come to Ireland.

He cited an equation by Berkeley economist Enrico Moretti suggesting that each high earner creates five more jobs in the economy, and said he wanted to attract foreign investment with a low income tax rate to match our low corporate tax.

Mr Bruton's comments followed a warning from the head of the IDA that income tax is now so high it is in danger of driving away foreign direct investment from Ireland.

IDA boss Barry O'Leary said the country was now "on the borderline" in terms of having income tax rates that could act as a deterrent to potential overseas investors.

Mr Bruton backs up this view, saying income tax is an important part of the package of attracting jobs.

"The key is still to make sure we have a robust tax offering and we don't raise the cost of employment and we gradually make it easier to employ in Ireland.

"People hit very high rates of tax at very low incomes here. That tax wedge has always been a part of the competitive environment, so we have to be careful of it and reduce it whenever we can," he added.

Mr Bruton says the marginal tax rate is a factor.

"There is no denying that. There have been some initiatives to try and mitigate that through the SARP. . .where people can bring in staff," he said.

Mr Bruton was referring to tax exemption for foreign executives who come to work in Ireland brought in by Mr Noonan in Budget 2012.

The Special Assignee Relief Programme (SARP) allows overseas executives who sign up for one to five years to be exempt from income tax on 30pc of salaries between €75,000 and €500,000.

Mr Bruton said the priority initially had to be people on lower incomes.

COMPETITIVE

"But I suppose, certainly the priority in my view would be the low income at which people hit those rates. That has to be the first group; and clearly if you can push that out there is benefit through the system."

But Mr Bruton said the country had to be competitive in the tax package offered to "talent" that bring value in.

"That economist, (Enrico) Moretti, the five-to-one ratio he talks of, you know, these sort of key strategic players, that five jobs for every one is the ratio that you look at in these very successful clusters in cities, those sort of key players are very crucial. You have to be sensitive to their role in the ecosystem -- to use that awful buzzword," Mr Bruton said.

By Fionnan Sheahan, Group Political Editor

Irish Independent

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