| 18.3°C Dublin

Cut taxes in Budget by €2bn to get us spending

Close

Tanaiste and Social Protection Minister Joan Burton

Tanaiste and Social Protection Minister Joan Burton

Tanaiste and Social Protection Minister Joan Burton

There's less than three weeks to go to the Budget and it's anyone's guess as to what will happen. The Taoiseach, Enda Kenny, wants to take 1pc off the top rate of tax. That's one of the dumbest proposals I've heard. It benefits those on the highest incomes disproportionately to everyone else, and when there's not enough to pay for essential services it's just plain stupid.

A married couple on €100,000 a year would save €344; it wouldn't even pay for the property tax, and water charges will claw it back, starting next week. A single person on the average industrial wage would gain about €70 a year. If your gross income is a million a year, then you gain €10,000, but even that's not much when you are paying 7pc for USC and they are taking 0.75pc from your pension fund, and so on.

If you are among the retired public sector elite, or a retired Taoiseach, it's a gain of over €1,000 for your pension alone, and two or three times that will be saved on what they pay you for the government quango you were appointed to.

One per cent off the top rate is nothing when you look at what we have had to endure and it can't possibly benefit those who need it most. The Taoiseach and IBEC may claim we need it to encourage staff of foreign multinationals to relocate here, but they have been taken care of with special arrangements that already exclude part of their earnings from tax. One per cent won't make a difference either way.

Michael Noonan's initiative to increase the threshold (€32,800) above which income is taxed at the top rate (41pc; 52pc when you add the USC and PRSI) makes sense, but it's not enough. NERI suggests increasing the rate of employer PRSI, which doesn't help struggling employers. Maybe we should just let NERI and IBEC fight it out between them, and the winner can tell the Government what to do.

The Tanaiste, Joan Burton, is happy to follow the advice of such experts as the Irish Fiscal Advisory Council, but her colleague Alex White is more inclined to listen to what they have to say before doing what he intended to do all along.

They really haven't a clue, no more than the administration before them. They blame the last government for where we are now, and while economic indicators suggest that things are getting better, they claim it is because of something they did, when we all know that it is not.

We started the year needing a two billion adjustment. Then, as their predictions turned out to be wrong, it seemed as if one billion would be enough. Last week, figures released for GDP and GNP suggested that we don't need any adjustment at all. They choose to ignore the fact that we borrowed €20bn a year since the financial crisis began to prop up and keep a public sector that was overdue for reform and is partly responsible for where we are now.

The national debt has grown to over €200bn, that's over two hundred thousand million, and we haven't even started to pay it back. The interest alone is eight or nine billion a year depending on how you calculate it. Things are getting better, but they couldn't be much worse. The most vulnerable will be pushed over the edge, if something doesn't change to bring them back. They need more than a signal in the next budget; they need change that affects them in their pockets, so that they can go out and spend again, something they haven't been able to do for a long time.

A person on the average industrial wage lost three to four thousand a year in ­income tax alone. That's about €20,000, per person, taken out of spending since the recession began. Those who didn't lose their jobs, had their pension funds raided by the Government, or their pay packets were cut to shreds by an array of taxes; now they are afraid to spend what they have. We have forgotten how to spend and they need to use the Budget to remind us how. They need to shock us into recovery by giving back more than they think we need.

The latest figures released by the CSO for GDP and GNP show that they have risen, year on year, by 7pc and 9pc respectively. We are still not where the EU want us to be, but based on these figures we are doing better than everyone else and it is because we took the pain when it counted, and now it is time to ease up and take a breather.

I wouldn't provide €300m in tax cuts as has been suggested, or €600m, or €800m being the latest proposals. I'd provide €2bn next year and the same the year after. It's only a fraction of what they took off us in the last six years and it's time to give it back, even if they have to be careful as to who they give it to, and they have.

Daily Digest Newsletter

Get ahead of the day with the morning headlines at 7.30am and Fionnán Sheahan's exclusive take on the day's news every afternoon, with our free daily newsletter.

This field is required

The first two billion should be given freely and divided evenly between everyone, rich and poor. The rich pay the most tax and there is no reason why they should be excluded. If things go wrong again they'll be left to pick up the pieces and they'll have to pay for it too. The second two billion should be shared out strategically based on how it will be used and it should not be restricted to need. There is nothing like self-indulgence to stimulate economic growth.

The right kind of spending increases the money supply and makes more to go around. That was the job of banks, but they failed to deliver. If we get the mix right between consumption, investment and simple pleasures, the economy will grow and if we are lucky we will leave the rest behind. It's like dieting; you can cut everything out, but your body reacts by storing fat. We are on the 5:2 plan, we've had five or six years of austerity, now it's time to let go and indulge ourselves to get consumer confidence back over the next two years.

Business confidence is on the mend and even building has started again; but if consumer confidence isn't there to provide demand, we will end up back where we started, and that was a very dark place. Concentrate on workers first, both rich and poor. If their lot improves, those who have stepped back will make themselves available for work again and the participation rate will rise. Maybe this time the Government will attract some real jobs and not the internships that were a stopgap at best.

We made it to the quarter final, we've a long way to go and we need a new game strategy if we are to make it through to the next stage. If they get it wrong, it adds another two billion to the national debt; it's a drop in the ocean. But we won't get it wrong! If they do, it's time to change the manager. We'll be a long time dead, we need to make the best of what's left and it starts now.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning


Most Watched





Privacy