Proposed budget tax cuts ‘profoundly unfair’

The majority of tax cuts being considered by Government as part of next Tuesday’s budget are “profoundly unfair” and would be of no benefit to the most vulnerable members of society, according to an independent think tank.

In a pre-budget evaluation of proposed taxation measures Social Justice Ireland criticised a range of measures suggested by various members of Government over the past months.

Among the suggestions it wants the Government to abandon are cuts to the top rate of tax and reducing the 7% USC rate.

“Some tax proposals currently being considered by Government should be rejected because they would give far greater benefit to people earning higher incomes while giving nothing to lower-income employees,” according to Social Justice Ireland director, Dr Seán Healy.

A study conducted by Social Justice Ireland published today shows that four of seven options to reduce income tax currently being considered would be profoundly unfair because they would favour only those with higher incomes.

The Coalition has signalled its intent to again alleviate the financial pressure on the so-called “squeezed middle” in this year’s budget.

Tax cuts that give back to middle-income earners are expected with the much-maligned Universal Social Charge (USC) in the crosshairs of a Government seeking to curry favour ahead of a looming general election.

Recent reports suggest those on middle-incomes will see their effective tax liability fall below the 50% mark, from 52%, once Finance Minister Michael Noonan unveils his budget next week.

The advocacy group does not consider tax cuts of any kind a priority ahead of next week’s budget with its preference instead for investment in social services and infrastructure.

However, with the Government having flagged imminent tax cuts, the seven potential options examined by Social Justice Ireland are:

  • A decrease in the top tax rate from 40% to 39% (full-year cost €246m);
  • A decrease in the standard rate of tax from 20% to 19.5% (full-year cost €272m);
  • An increase in the personal tax credit of €100 with commensurate increases in couple, widowed parents and the single person child carer credit (full-year cost €220m);
  • An increase in the standard rate band (20% tax band) of €1,500 (full-year cost €257m;
  • A 1% point decrease in the 1.5% USC rate, applied to income below €12,012 (full-year cost €243m);
  • A 2% point decrease in the 3.5% USC rate (so that it merges with the 1.5% rate), applied to income between €12,012 and €17,576 (full-year cost €264m);
  • A 0.5% point decrease in the 7% USC rate, applied to income above €17,576 (full-year cost €182m).

Of these, Social Justice Ireland considers increasing the personal tax credit; reducing the 1.5% USC rate by 1%; and reducing the 3.5% USC rate by 2% to be fair but warns that the others should not be implemented under any circumstances.

“The poorest 10% of society lost most since the onset of the crisis. Reducing the lower USC rates or increasing tax credits are the fairest options and Government should opt for these rather than choosing any of the three unfair options,” Social Justice Ireland research and policy analyst, Michelle Murphy said.


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