Tax cuts for 'squeezed middle' back on table
Coalition considers reliefs for stretched parents as unions push for pay rises
Published 12/04/2014 | 02:30
A RANGE of measures to ease the burden on squeezed middle-income families is firmly on the table for the Budget in the wake of forecasts of the end of austerity.
Tax cuts for workers on middle incomes and tax relief for parents, along with lower spending cuts, will be among the key measures to be negotiated in Coalition Budget talks.
The country's leading economic think-tank, the ESRI, says the level of economic growth means the Government needs to do little or no adjustment in the Budget, beyond bringing in water charges.
The push for giveaways in the Budget is set to intensify following hugely positive predictions of economic growth.
But the Government is now going to face a raft of demands, including calls for public sector wage rises.
Labour Party figures believe the economic upswing will allow for the party to pursue the tax cuts and lower levels of spending cuts it wants to see in Budget 2015.
Fine Gael is being more cautious and is pointing to Public Spending Minister Brendan Howlin's warnings at a cabinet meeting this week that a tough Budget lies ahead.
"Howlin delivered a fairly tough message at Cabinet this week, saying 'don't anyone get any ideas'.
"It was one the Fine Gael ministers were happy to hear, particularly Michael Noonan," a government source said.
But many in Labour feel there is now scope to press ahead with measures aimed at struggling middle-income families.
"There is more flexibility now. The forecast today is encouraging. The focus will have to be on hard-pressed families and the cost of living.
"The trajectory of the economy has been positive for a while now," a senior Labour source said.
The Government is looking at income tax cuts as a priority in Budget 2015. Providing a boost to squeezed middle-income workers – earning between €30,000 and €60,000 – will be the focus of the reductions before the next election.
Fine Gael has previously mooted tax cuts aimed at lifting the threshold at which middle-income earners hit the top rate of tax above €32,800.
But the party is still insisting this is predicated upon a level of growth in the economy that allows for tax changes.
"The relief will still be applied to those in €32,800 getting caught in the top rate, even that is dependent on the numbers panning out later in the year," a party source said.
Labour has a longer list of measures in mind, such as lower levels of cuts to spending and greater amounts of tax relief.
Social Protection Minister Joan Burton (pictured), said the ESRI prediction did not mean the Government could forecast exactly what would be in the Budget. "It certainly increases the room for manoeuvre, in a positive way," she said.
Education Minister Ruairi Quinn urged caution and said the personal finances of a huge number of people across the country were still a cause for concern.
Health Minister James Reilly said the ESRI's findings were the result of years of painful austerity budgets borne by the Irish public but insisted policies being pursued by the Government would remain in the medium term.
"We're still spending more than we're taking in, so no Budget can allow that to continue. But there is light at the end of the tunnel. It doesn't mean we can change our fiscal policy, we still have a way to go. But it shows the work the people have done is bearing fruit," he said.
FG sources say it's 'steady as she goes' and there are no policy changes because of the ESRI forecast. "We are not going to be changing our plans because it would be foolish politically," a source said.
Labour is mooting a valuable tax break for squeezed middle-income families with children. A tax credit is effectively a discount to your tax bill. A child tax credit would give a worker with children a larger discount based on their number of children.
The Coalition was already looking at a range of options to target middle-income earners and get them out of the punitive higher rate tax net where 52 cent of each €1 earned goes on tax. The options included:
* Reducing the higher income tax rate of 42pc.
* Raising the band where workers enter the higher rate above the current level.
* Moving around the bands for the USC.
Increasing tax credits was previously being ruled out as workers don't tend to associate this with extra money in their pocket. But Labour sees tax credits as a means to directly home in on a particular sector, such as struggling parents with children.
Last night, Sinn Fein finance spokesman Pearse Doherty accused the ESRI of being a "cheerleader" for the Government and said previous reports had incorrectly predicted economic recovery.