Noonan must reverse tax rises
One of the most retrograde steps of the past few years has been the partial undoing of the gradual lowering of tax rates carried out over the previous two decades. The top marginal tax rate is now back up to 52pc when the Universal Social Charge is included.
This much higher marginal tax rate has made it extremely difficult for multinationals to attract key staff to Ireland, a problem which the Finance Bill published yesterday belatedly seeks to address.
Under the terms of the government's proposed Special Assignee Relief Programme (SARP) generous tax breaks will be given to skilled individuals coming to work in Ireland for companies. Qualifying workers will receive a 30pc discount on their tax on any income earned between €75,000 and €500,000. This will reduce the top effective rate for such workers to just 36.4pc.
Given the difficulties our high marginal tax rate has been posing for the IDA in its efforts to attract foreign investment projects to this country, the SARP scheme is long overdue. Anything that makes Ireland a more attractive location for foreign investment is to be welcomed.
By introducing SARP, Finance Minister Michael Noonan is implicitly conceding that Ireland's tax rates are now too high. Once marginal tax rates approach 50pc they have a powerful disincentive effect as workers baulk at the prospect of handing over a half or more of any extra income which they earn to the taxman.
Which of course begs the obvious question: if our tax rates are too high for skilled foreign workers then surely they must be too high for Irish workers also? While Mr Noonan, his civil servants at the Department of Finance and their masters in the EU/ECB/IMF troika would no doubt argue that higher marginal tax rates are part of the price we must pay to restore stability to the public finances, the evidence would seem to suggest otherwise.
Whatever extra revenue higher income tax rates and higher indirect taxes such as VAT bring in to the exchequer is at least partially offset by the disincentives resulting from such higher taxes. Consumers have responded to higher taxes by saving record amounts of money and postponing any unnecessary spending. This in turn has had a disastrous impact on the economy with GNP, basically the domestic economy, set to shrink by 0.7pc this year, the fifth successive year of decline.
Twelve months ago Fine Gael came within a hair's breadth of an overall majority on a no-income-tax-increases platform. Labour, which had hedged its bets on the tax issue, won less than half the number of seats as Fine Gael.
With the economy in the deep freeze, merely leaving income taxes unchanged is no longer good enough. The damage had already been done by the previous government. Now that Mr Noonan has discovered the economic benefits of lower tax rates he should cut marginal tax rates for domestic taxpayers also.
Irish Independent
