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Tax cuts could boost economy after Brexit

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Public Expenditure Minister Paschal Donohoe. Photo: Arthur Carron

Public Expenditure Minister Paschal Donohoe. Photo: Arthur Carron

Public Expenditure Minister Paschal Donohoe. Photo: Arthur Carron

After nine months of waiting in a phoney war situation, we may finally see the EU-UK divorce proceedings actually begin this week. It will be a long and difficult process, taking two years to achieve a big-picture draft deal.

There is no doubt that these are the biggest foreign policy decisions facing Ireland since World War II. The kind of arrangements Ireland may be able to get will shape the lives of every Irish citizen for several generations.

A wrong outcome could also threaten the fragile peace process in Northern Ireland, taking us back to a time of heartbreak for everyone.

For all these reasons, every imaginable angle on measures to cope with the Irish fallout from Brexit must be carefully studied. These include a call by Public Expenditure Minister Paschal Donohoe to seriously contemplate cutting the rate of so-called marginal tax.

Mr Donohoe rightly points out that it may not be sustainable to have somebody earning the modest yearly income of €33,800 paying some 50pc in all the various taxes. He argues that in a post-Brexit world we need to look at ways of reducing that tax burden if our economy is to continue making progress.

It will be a hard slog economically, given demands for increased public service pay and improved public services, to see how tax cuts can be achieved. But we will have to try.

It also poses political challenges, especially for Fianna Fáil and Sinn Féin, who are continually swayed by the smaller hard-left parties and groupings. Will these two parties have the courage to abandon this "pay-nobody" mentality and talk about rewarding work over welfare?

The experience on the water charges fiasco has not been encouraging in this regard.

Reform rules so credit unions can play key role

For half a century our credit union network was a shining example of success as it promoted the nation's social and economic wellbeing. But the problems and excesses of boom and bust also hit our "people's banks" hard in many respects, and they are currently struggling to regain their financial footing and the people's confidence.

Today we report that our credit unions are currently obliged to turn away money. In practice, credit unions are capping deposits because a surge in savings is distorting their accounts and making it hard to meet regulatory rules.

The Central Bank requires the credit unions to keep €10 in reserve for every €100 they have on deposit. It is a well-intentioned rule but its effects are compounded by serious restrictions on the type of investments which credit unions are allowed to make.

The situation raises questions about the depth and strength of our much-vaunted economic recovery. The real problem for credit unions is they are not able to lend enough and thus derive the profits which the rules require to fund reserve capital. The Central Bank, which played a rather undistinguished role in the 2008 banking collapse, is the institution we now look to to resolve this serious impasse. It has promised to review the rules.

Nobody wants to risk a return to the bad experiences of the recent past. But it is vital that our credit unions regain their major role in the nation's financial and social life. We need their potential to be fully harnessed.

Irish Independent