'Significant room for manoeuvre' in tomorrow's Budget

'Significant room for manoeuvre' in tomorrow's Budget

Irish taxpayers are set for the first easing of austerity in seven years when tax cuts are announced in tomorrow’s Budget.

The most significant change for workers is set to be a cut of 1% in the top rate of income tax to 40%.

Government insiders said families and middle-income earners will be further boosted with the threshold on when the higher levy kicks in set to rise by €1,000 to €33,800.

Department of Finance sources also confirmed the long-awaited respite will spread to the deeply unpopular Universal Social Charge (USC).

An optimistic report on next year’s spending and tax estimates published last Friday looks set to pave the way for last-minute reform of the USC bands - currently the first €10,036 has a 2% levy; the next €5,980 has a 4% levy; and there is a 7% charge on anything over that.

“There is now significant room for manoeuvre, more than people thought initially,” a source said.

The easing of tax on earnings means the Government is essentially banking on increased disposable income driving consumer spending.

Exports are already well above forecasts and advisers and regulators have offered positive reports on the economic recovery in the last month, with one suggesting that Ireland will have the fastest growing economy in Europe next year.

Elsewhere, it has been privately conceded that a tax credit or relief will be introduced to alleviate the cost of newly imposed water charges.

Tens of thousands of protesters marched through Dublin last Saturday against the new utility bills – a reform demanded by the bailout masters in the International Monetary Fund and European Union.

Budget 2015 is the first relief for taxpayers since the economy nosedived in 2007 when the then coalition confounded calls for caution from analysts and gave out the last concessions of the Celtic Tiger.

Tomorrow’s announcement will see Finance Minister Michael Noonan outline a three-year fiscal roadmap for the first time, but it is not expected to specify income tax reform over that period.

A sizeable chunk of the speech will be devoted to Ireland’s reputation for taxing big business and how it can be improved.

But the 12.5% corporation tax rate is sacrosanct, a Government spokesman insisted.

However, the much-maligned Double Irish loophole – a tax avoidance technique employed by multinationals – will be tackled by Minister Noonan.

The complex system allows big business to reduce their tax bill even below the heavily criticised corporation tax rate. It works by one Irish subsidiary of the company paying fees to another Irish subsidiary which is not tax resident.

In effect the loophole exploits differences in residency rules, for example between Ireland and the US, where many companies who use it were founded.

Last year, Minister Noonan announced his intention to plug loopholes and with the country at the centre of an inquiry by the European Commission over alleged illegal state aid in a tax deal with Apple the initiative has further impetus.

The first step was to prevent the existence of stateless companies basing themselves in Ireland from January next year.

Other initiatives designed to build on the long-awaited revival will include a social housing fund to drive construction projects and solve the homeless and housing crisis in Dublin.

Mr Noonan takes to his feet in the Dáil at 2.30pm followed by a second speech by Minister for Public Expenditure and Reform Brendan Howlin, to outline how the Government will spend its limited resources.

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