Income tax ‘could rise by 3%’ in the budget

A TOP adviser to Finance Minister Brian Lenihan said there is “scope” to increase income-related taxes by about 3% for every worker in the country.

Jim O’Leary told a pre-budget conference in Dublin that “we are into tax increase mode” as the Government prepares to present the European Commission with a four-year plan to reduce the huge gap in public finances.

He also said there would be “serious further erosion” of the country’s control over budgetary matters under the EU’s plans to scrutinise the spending of member states.

Mr O’Leary was addressing a conference on Budget Perspectives 2011, organised by the Economic and Social Research Institute (ESRI), which heard that budget plans for a “universal social charge” would have a more severe impact on the lower paid than on high earners.

The new tax was flagged in last year’s budget by Minister Lenihan who said it would be uniform across all income groups and address the imbalance by which 4% of the highest earners pay almost half of the income tax yield. The new uniform tax would have to be set at 7.5% to reach the same level of revenue collected by these three taxes, according to research presented yesterday by the ESRI.

Father Séan Healy of Social Justice Ireland said: “If this were to go ahead, together with the target of increasing the number of low paid people who are in the tax net and reducing welfare, I think it will have an incredible regressive impact in the budget itself.”

Blair Horan of the CPSU, which represents 13,000 lower paid civil servants, said the streamlined charge was a ploy “to get the lower paid back into the tax net to pay more and probably pay a disproportionate share.”

Mr O’Leary, who joined the Department of Finance at the start of the month and is expected to exercise influence over budgetary decisions, said when income tax and these three levies are taken into account “we are probably about three percentage points below where we were on average over the 1998-2000 period”.

He said: “That would suggest, and I’m talking very loosely, that there is scope there for increasing the tax burden by about three percentage points.”

He said: “An obvious way to increase taxes is to reduce tax credits.” But this would be burdened more on lower incomes.

On EU plans to introduce a new model of budget scrutiny from next year, he said: “There will be wider and deeper pool of shared sovereignty, that’s perhaps a euphemism for what other people might describe as a serious further erosion of national discretion.”


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