The next three budgets will be focused on the ‘squeezed middle’ — families earning between €33,000 and €70,000 — if Fine Gael and Labour get returned to office at the next general election.
Finance Minister Michael Noonan denied that Budget 2015 was designed for electoral purposes but indicated that his strategy to change the income tax system needs three years to implement.
Yesterday’s budget marked “the first instalment” of that reform, which will see “most of the benefits” directed at middle-income families, he said.
“Although we can’t announce the individual items for next year — and hopefully, if we win the election, the year after that — the mix of policy levers will be something similar and the objectives will be the same: To target the squeezed middle and to be fair to the people at the bottom.”
Mr Noonan said the plan was “all about securing the recovery, all about job creation — every piece of it”. !
He said: “We also wanted to be fair to low income people. But you can’t give relief to a lot of low income people because they don’t pay income tax.”
Poorer groups will instead benefit from changes to the Universal Social Charge. The point at which they start paying the charge was raised from just over €10,000 to €12,000 in yesterday’s budget, removing 80,000 people from paying the charge.
Mr Noonan said it was a “codology” to suggest that income tax changes were disproportionately beneficial to higher earners.
“People who have more money take home more money. If you have €70,000, you have a bigger take-home pay than if you are €35,000. And you are paying a lot more tax,” said Mr Noonan.
The country is on course to return to a budget surplus — taking in more money than it spends on services — in 2018, marking an end of borrowing for the day-to-day running of the country, he said.
Mr Noonan denied that the tax cuts and spending increases — worth over €1bn — were aimed at buying the next election.
He said his plans were “well within the range” of reducing the deficit of 3% of GDP.
“A lot of people got stuck in a rut about the bailout and the troika and all the rest of it. We are no longer in a programme and we are no longer bound by their rules,” he said.
“An excessive deficit would be 3% of GDP and this budget brings it in to 2.7%. We get advice from some unidentified spokes-man in the [European] Commission. Why don’t they give the advice to France and Italy? If they really want to be brave. We are totally compliant.”
Public Expenditure Minister Brendan Howlin echoed this, saying there was no point cutting more than what was required.
“We have a social economy as well as everything else. And people who have had seven years of difficult decisions imposed on them need some relief,” he said at a joint press conference last night.
“Unless you subscribe to the old British navy maxim that you keep flogging until morale improves, we need to give some relief to people in a modest targeted way.”
Mr Noonan said in his budget speech that, in the post-austerity era, the Coalition would not bring the country back to the “boom-and-bust” policies of the past. Instead, it would proceed with “prudence and caution” and build “a better future with a new economic model”, he said.
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