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Tax cuts are back on the menu as parties prepare for next election

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Diners relax at a cafe in Rennes in France. In France, people start paying the marginal rate of tax at €186,749 pa. In the US, the higher rate kicks in at €301,163; in Germany it starts at €259,103; and in Britain, €183,285. Here in Ireland the marginal income tax rate kicks in at €32,800 for a single person

Diners relax at a cafe in Rennes in France. In France, people start paying the marginal rate of tax at €186,749 pa. In the US, the higher rate kicks in at €301,163; in Germany it starts at €259,103; and in Britain, €183,285. Here in Ireland the marginal income tax rate kicks in at €32,800 for a single person

Diners relax at a cafe in Rennes in France. In France, people start paying the marginal rate of tax at €186,749 pa. In the US, the higher rate kicks in at €301,163; in Germany it starts at €259,103; and in Britain, €183,285. Here in Ireland the marginal income tax rate kicks in at €32,800 for a single person

THE Troika has barely checked out of the lounge at Dublin Airport but the government parties have already slipped into pre-election mode, with giddy promises from ministers about tax cuts.

Last weekend, the Sunday Independent and the Sunday Times both reported that the Labour Party will be seeking to reduce the burden of the property tax by 15 per cent on councils it controls after the next election.

While the promise is watery and highly conditional on many factors, the underlying strategy of the message is clear.

Appealing to the hard-pressed middle classes who are under attack from employers seeking to drive down their wages, such talk from Eamon Gilmore and his party is music to the ears of those who have suffered most during Ireland's spectacular self-implosion.

Aristotle once said: "Where the middle class is large, there are least likely to be factions and dissensions."

With Ireland's middle class – the young middle class in particular – under attack from a multitude of angles, it is no coincidence that this group forms a major block of the at-present undecided voters in national opinion polls.

It is this cohort that Labour and Fine Gael are trying to court. Let us not forget the Fine Gael promise that there will be tax cuts by 2015 (just in time for the general election).

Ministers have also hinted at reducing the burden of the controversial universal social charge (USC).

Such talk reflects mounting calls from the Fine Gael back benches to deliver some relief to middle-class voters as quickly as possible, with focus turning to eliminating the USC and increasing the limit at which people start paying the higher 52 per cent marginal rate of income tax.

Outspoken Fine Gael TD for Dublin South East and member of the Public Accounts Committee Eoghan Murphy has been to the fore of these calls.

Seen as the leader of the so-called 'five-a-side' rebel group of young Fine Gael backbenchers, Murphy told me that the Labour proposal was "nonsensical" and said if the party really wanted to look after the poor then it should be calling for a two per cent cut in VAT, which he says is a far more regressive tax.

"With any new tax, you have to allow time for it to bed in. So this suggestion from Labour is nonsense," he told me.

The rebel group of eight TDs – which has continued to meet despite previously being reprimanded by the Government Chief Whip – has ramped up its activities since Christmas and is leading calls within Fine Gael for tax cuts, focusing on ensuring relief to those squeezed middle-class voters.

Murphy's Kerry South colleague Brendan Griffin says the burden of taxation on the "coping classes" has become increasingly onerous and he said the level at which Irish people begin to pay the higher rate of tax must be increased. If the Government sweet-talk gathers momentum, the opposition parties inevitably will weigh in with their own tax-cutting brainwave. In fairness to the young Fine Gaelers, they have a point. Ireland's marginal income tax rate is 52 per cent for employees and 55 per cent for the self-employed.

This is made up of 41 per cent income tax, four per cent PRSI and seven per cent and 10 per cent USC.

Latest OECD figures show Ireland's rate of 52 per cent on employees is the ninth highest marginal tax rate out of the 34 members of the OECD.

But both Murphy and Griffin along with many others in Fine Gael are beginning to focus on the incredibly low level in which the higher marginal rate of tax kicks in here compared to many other Western countries.

Here, the marginal income tax rate kicks in at €32,800 for a single person and between €41,800 and €65,600 for married couples/civil partners, depending on their level of income.

In the US, people start paying the higher rate when they earn more than €301,163. In Germany the higher rate kicks in at over €259,103, in France it is €186,749, in Britain it is €183,285. Such a situation is blatantly unfair and middle classes will again bear the

brunt of the property tax and the pending water charges. But, despite the obvious unfairness, just how realistic is such talk of cutting taxes given what this country has gone through.

The USC, property tax and water charges added to sharp increases in existing taxes as well as deep expenditure cuts of almost €30bn under numerous headings have been imposed since the extent of Ireland's budget crisis struck home back in the second half of 2008. Yet, despite all of this, government spending out-paced revenue by almost €1bn per month during 2013.

In 2014, the Government will add a further €8bn to the country's debt column.

Since the landing was anything but soft, as we were told by Messers Cowen and Lenihan, we simply can't go back to spending what we did in 2008. The same applies to taxes, unfortunately but given the Irish phenomenon of committing to an overly generous social safety net, tax revenues have had to increase.

Post-bailout Ireland must fund itself exclusively from the markets, raising loans each year at affordable rates. Budget deficits have to be financed as well as maturing, with up to €9bn last year going toward debt repayments. Calls from politicians for tax cuts have certainly been regarded as bogus by some of the country's leading economists.

University College Dublin (UCD) economist and Sunday Independent columnist Colm McCarthy said it is hardly coincidental that such talk is coming as the European and local elections approach in May and that the next general election is likely before the end of 2016.

"It is vital that the progress made is not endangered through the mismanagement of expectations," he has said. He is adamant that more years of fiscal rectitude are to come, a spectre confirmed by Finance Minister Michael Noonan to his parliamentary party meeting last Wednesday night.

Trinity College Dublin economics lecturer and Independent Senator Sean Barrett concurs, adding that talk of tax cuts was a "totally bogus discussion" as long as we were borrowing €8bn a year and our debt to GDP ratio was 120 per cent.

Post-Troika flights of fancy were not confined to politicians. Demands from trade unions to restore public service pay levels and various expenditure budgets to their pre-crisis levels are just as ludicrous, especially given that the pay disparity between private and public pay has widened in favour of state employees.

Dangerous raising of expectations for political gain was a large part of what sank this country during the past decade. The fuelling of a boom long gone was done solely to retain power at all costs.

That cost has been devastating, but yet we look set to do it all over again.

Irish Independent