Saturday 21 September 2019

Tax burden means that welfare wins over work in scatter-gun Budget plan

TD Róisín Shortall said 58pc of workers earn less than €35k Photo: Gareth Chaney Collins
TD Róisín Shortall said 58pc of workers earn less than €35k Photo: Gareth Chaney Collins
John Downing

John Downing

Well, so much for those Leo Varadkar slogans about helping "people who get up early" and supporting the "people who pay for everything".

We have struggled to find incentives for lower-paid people to go and take a job in the documentation accompanying Paschal Donohoe's Budget 2018. Right enough, there is a 30 cent increase in the minimum wage from next January, bringing it to €9.55 per hour.

And there is the easing of USC from 2.5pc to 2pc, which is of special interest to people on very low wages in the €12,000 to €18,000 per year income bracket. By the Finance Department's own calculations, the minimum wage increase and lower USC rates mean between €6 and €9 per week extra for a worker in this income range.

But when you move on to look at someone on €20,000 per year, you find they will get an extra €1 per week; those on €25,000 will also get an extra €1, and a person on €30,000 is in line for €2 extra per week. When you recall that a person on the dole will get an extra €5 per week, you have to ask: Where is the incentive to go out to work?

In the Dáil, Róisín Shortall touched on the issue and suggested we are talking about a numerous category of workers. "It's first important to remind ourselves that much of income earners earn less than €35,000. In fact, 58pc have incomes of less than €35,000," Ms Shortall said.

Neil McDonnell, of the small firms association ISME, acknowledges that the Finance Minister was hidebound in his preparation of this Budget. But he laments the failure to set out a vision for future changes.

He says the figures cited above again reinforce the reality that Irish workers on very low wages are amongst the lowest taxed in the developed world. It also again emphasises just how quickly tax on work rises, as he again talks about the plight of people on average earnings hitting the higher 40pc rate of tax.

"In France, workers only hit the higher rate at €73,000 per year. In Britain, it is as high as €150,000," Mr McDonnell says.

But the tax plight on people between €20,000 and €30,000 is of direct interest because of the likelihood that there is little incentive to abandon social welfare and commit to the world of work. There are other welfare benefits for people who are unemployed, such as a medical card, rent allowance, and even the prospect of qualifying for social and affordable housing.

The prospect of losing these is another reason to avoid taking up work. And then there is what is grandly called the 'Hidden Economy'.

Yes, we are talking about augmenting welfare payments with a spot of undeclared work for cash. Mr McDonnell and his colleagues in ISME say it is accepted in all official circles that the 'Hidden Economy' is alive and well and propping up the unemployment figures.

None of this is to be seen as an attack on people who find themselves out of work and dependent on unemployment payments. It is merely a realistic statement of fact in Irish social and economic life today.

There is an urgent need to reassess the gap between work and welfare. A hard look at the taxation levels of people earning €20,000 to €35,000 per year would be the place to start.

You don't have to be a crack economist to know that it is high time we let people in this category keep more of their wages. Leo Varadkar, in rhetoric and sloganising, agrees with this.

But the little vignettes outlined above show the gap between what is said and what is done.

We have been promised some details around these themes in a document which will supposedly give some life to the Taoiseach's talk about a "Republic of Opportunity." We expect these details at the Fine Gael Árd Fheis next month. So, we shall see.

This is, above all, a clear demonstration that Leo Varadkar's slogans about helping the squeezed middle remain, for now, just slogans. Now he and his Government colleagues must act.

Irish Independent

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