Pressure is mounting on the Government to accelerate tax cuts for middle-income earners after a report showed they bore the brunt of the tax hikes in recent years.
Taoiseach Enda Kenny has already said that he will begin the process of reducing the top rate of income tax for the squeezed middle in October’s budget, although he has also cautioned any initial drop will be modest.
However, an ESRI report showed the price for maintaining most social welfare payments at pre-recession levels, despite the increase in the number of welfare recipients in the last seven years, has been paid mainly by middle-income earners through tax rises.
Jobs and Enterprise Minster Richard Bruton said the Government was well aware of the sacrifices made by this group.
“Clearly we need to take heed of the consequences — that there has been a squeeze, which is illustrated by the ESRI, and we need to look at how we can relieve that,” said Mr Bruton.
“We have problems in our tax code that middle-income families hit high rates of tax at too low an income.”
There is some good news for the Government as it figures out a way of easing taxation after the Central Bank upgraded its predictions for the growth of the economy from 2% to 2.5% for this year and to 3.3% for next year.
The forecasts are the most optimistic since the financial crash and are based mainly on strong exports. While cautioning that any improvement in the economy is sensitive to international shocks, the bank also predicted that unemployment would fall to 10.5% next year.
Whether or not the growth forecasts prove accurate, the Government faces a challenge to deliver on the tax cuts promise as Mr Bruton stressed that any relief would not be delivered at the cost of welfare recipients.
“The Government has made it clear and pledged that we are not going to reduce basic social welfare rates and that has been part of the programme for government throughout,” said Mr Bruton.
That position was also underlined by the minister of state at the Department of Social Protection, Kevin Humphreys, who said that the ESRI’s findings were evidence of strong “social solidarity” between income earners and welfare recipients — a stark contrast with our European neighbours who allowed welfare recipients to fall behind.
Breda O’Brien of the Irish National Organisation of the Unemployed said that, if there was room for relief in the budget, it should not automatically be used for tax cuts.
“The downside to tax cuts is that they tend to favour the better-off,” she said. “A lot of people are working in relatively low-paid jobs, so tax cuts probably aren’t going to make a huge difference to them.
“A lot of people on welfare have seen in recent years their basic payment maintained but a lot of the other support services have been cut and a lot of people are struggling.
“People need to be conscious of that in this debate.”
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