Our taxes are now too high, IDA chief warns
INCOME tax is now so high that it is in danger of driving away foreign direct investment from Ireland, the head of the IDA warned.
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.
High tax was placing competitive pressure on the country, with workers here now paying far more than workers in the UK or even so-called high tax countries such as Germany and France.
"The rates of income tax have got to the level that there wouldn't want to be any further increases and ideally one would want to see a plan to reduce them over time," warned Mr O'Leary, in a rare attack on government policy.
His comments came as the Irish Independent learned that the Government will commit to tax cuts for hard-pressed working families in its new economic strategy, which will be outlined next week.
A six-year economic plan, which will follow Ireland's formal exit from the bailout this weekend, contains a pledge to cut taxes.
Mr O'Leary and the IDA are highly regarded by the Government, given their track record of delivering huge numbers of jobs through foreign direct investment.
Attracting foreign companies to Ireland is the cornerstone of the Government's economic policy. Mr O'Leary told the Shannon Chamber of Commerce that change was needed to ensure continued success in this area.
"There is no doubt about it, the effective tax rate in Ireland has become much too high. It is placing more competitive pressures on Ireland," he said.
Mr O'Leary warned of the need to send a signal to overseas investors that the high tax burden here would be reduced.
This year alone, the IDA is due to deliver 13,000 jobs in IDA client companies, with recent job announcements by household names such as Ebay, Yahoo, Facebook, Pfizer, Zurich and Deutsche Bank.
Expensive healthcare and education are further deterrents to senior managers who might be thinking of moving here.
At the moment, a single worker in Ireland starts paying the highest 52pc rate of tax on any earnings above €32,800, while a married couple with one income pay the top rate on earnings over €41,800.
This includes the 41pc income tax rate, 4pc PRSI and the 7pc universal social charge.
In Britain, the top rate of income tax does not kick in until salaries go over €183,235 and in France the rate is €186,749. In the US, the highest rate does not apply until earnings are greater than €300,000.
The Government's draft six-year Medium Term Economic Strategy contains a commitment to address the problem.
The plan says the Government will reduce the marginal income tax rates as part of a revamp of the tax system, as long as the economic conditions permit.
Senior executives from multi- national companies are generally paid a fixed salary regardless of what country they work in.
They face far higher income tax bills here than in other comparable countries. This means they would have more take home pay if their company located elsewhere.
The IDA fears that this will make it more difficult when trying to get senior executives to choose Ireland ahead of other countries, despite our low corporate tax rate of 12.5pc.
The new commitment is likely to be welcomed by both Fine Gael and Labour backbenchers, who have had to vote through unpopular measures such as the property tax in the recent past.
The move comes after Labour joined with Fine Gael in calling for tax cuts. A Labour source said the current level at which workers hit the highest tax rate was "too low".
The plan also contains targets to reduce the level of borrowing and will focus on job creation.
And there will be a policy of trying to attract foreign banks back to the country to boost lending after the high profile exits of major players recently -- which echoes previous comments by Fine Gael ministers such as Richard Bruton and Leo Varadkar.
Ministers discussed the draft economic strategy at a special cabinet meeting yesterday. Further changes are expected to be made before it is signed off on at next week's regular cabinet meeting on Tuesday. The strategy is expected to be published next week.
Taoiseach Enda Kenny said it was important for people to understand the Government is going to keep a firm hand on the tiller. "We have a very steady approach to what our target is, and that's not to achieve our 3pc deficit by 2015, but to have the growth of the country and the economy feed out into the systems," he said.
The new economic strategy will contain commitments to meet the debt reduction targets required under the EU Fiscal Treaty approved by voters last year.
It will have to bring down the deficit to 3pc of national income by 2015. Then it will have to achieve a balance in the "structural deficit" by 2018. This is the requirement to show that there would be a balanced budget, if factors such as the current rate of unemployment did not exist.
Michael Brennan, Gordon Deegan and Lise Hand