Wednesday 28 September 2016

There's one rule for tax cut promises: keep it simple

Published 07/10/2015 | 02:30

A smiling Bertie Ahern in 2007
A smiling Bertie Ahern in 2007

As the late great Frank Carson used to say about jokes: "It's the way I tell 'em."

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Taxation is spiky, tricky and complex. Anything a politician has to say about it has to be kept very simple.

In fact, an election sales pitch around tax is always best expressed in percentage cuts.

Thus, Fianna Fáil were able to tell voters they used to pay 48pc in PAYE under the Rainbow Coalition up to 1997. Five years later, Fianna Fáil-led governments were able to say that rate was down at 42pc.

At his pre-election Ard Fheis in March 2007, Bertie Ahern was able to pledge a further phased 2pc cut, among a host of other goodies.

It was a great part of that party's ability to win three back-to-back elections in 1997, 2002 and 2007. For seven years and three months of that period, Charlie McCreevy presided as Finance Minister.

McCreevy made many subtly-shaded changes to the taxation system via the tax credits. However, McCreevy in election mode liked to talk rates and revenue.

As far back as June 1997, shrewd judges of politics were able to predict that Fianna Fáil had stolen a march on the outgoing government by going right in and talking tax rates.

The Rainbow Coalition programme, focused on moving tax bands, tended to lose their audience far too early.

These thoughts come to mind when we look at the current Government's emphasis on cutting the hated Universal Social Charge (USC) in next week's Budget.

Everyone knows that this Budget is effectively a pitch for re-election.

Immediate re-election has never been achieved in this State by anything other than a Fianna Fáil-led government.

Intriguingly, this will be the first time in our history that there will not be a well-oiled and government experienced Fianna Fáil team warming up on the sidelines.

So, Fine Gael and Labour still feel they could be good to win, but the propitious nature of the signs suggest caution.

There can be no doubting the inherent iniquitous nature of the USC. Pretty much half the workforce, more than half a million people, are paying it at 7pc. And that is on top of PAYE and PRSI, taking too many workers over 50pc as the effective rate of tax.

Government ministers and their senior officials have always presented the USC as a necessary evil in desperate times. Finance Minister Michael Noonan has at times argued that the USC had a certain fairness about it, as it offered no loopholes for the well-off to dodge it, like many other tax measures.

Since the start of this year, the Taoiseach himself has led the charge in a series of promises to cut the USC. Labour has seen that promise and raised it to suggest that it would push entirely for its abolition.

More immediately, strong suggestions continue that there may be an effective 2pc USC rate cut unveiled next week. That could see people earning €70,000 getting their take-home pay increased by more than €1,000 per year, while those earning €35,000 would be €350 better off.

If Mr Noonan can frame it simply in those terms, he could have voters' attention. It would cut far more ice than talk of tweaks to tax bands.

There have been signals from the Government that this is how it will be.

Eighteen years after McCreevy wiped Messrs Noonan and Howlin's eyes, they may be getting the message: Keep it simple, talk rate cuts, target the hated USC.

Such a move might oblige Fianna Fáil to revisit their emphasis on restoring services over cutting tax.

Irish Independent

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