Budget will put 50% of taxpayers on top tax rate

HALF of those paying tax will be caught in the top rate of 42% next year.

Since Fianna Fáil and the Progressive Democrats came to power in 1997, more than 200,000 extra taxpayers are paying the highest rate, while there are an additional 400,000 at work.

The Government will have to take out 250,000 from the top-rate net over the next three years to fulfil its promise that no more than 20% of all earners will pay tax at the higher rate.

Despite this commitment in the Programme for Government, Budget 2004 will drag an extra 62,000 people into the top net next year, including workers on the average industrial wage.

While Finance Minister Charlie McCreevy insists the country is a low-tax economy, Tánaiste Mary Harney expressed concerns about the numbers on the highest rate, laying down a marker that the PDs will be pushing for the tax reform proposals to be implemented.

"I do recognise concerns about the number of people paying the 42% on marginal income. And I believe this should be addressed in future budgets," she said.

While Mr McCreevy claims only 33.4% of taxpayers are on the top rate, once the third of people earning an income who are exempted from paying tax are taken out of the equation, it leaves 52% of actual taxpayers in the top bracket.

Yesterday, the Taoiseach robustly defended the Budget, saying it was geared for a strongly growing economy. Budget 2004 would dispel the myth that this was a right-wing Government that catered only for the better-off, Mr Ahern said, as he claimed Ireland's public finances were the envy of Europe.

Under the FF-PD Government, average tax rates have fallen for all categories, including those on lower incomes, he said.

"After Budget 2004, for a person on the average industrial wage, the average tax rate will be 10 percentage points lower than it was in 1997," Mr Ahern said.

Figures from the Department of Finance last night showed an increasing percentage, and increasing number, of income earners being hit by the top rate in recent years:

1997-98: 424,000 28.4%.

1998-99: 482,000 30.4%.

1999-00: 543,000 32.6%.

2000-01: 540,000 30.6%.

2001: 516,000 28.3%.

2002: 517,000 27.9%.

2003: 570,000 30.5%.

2004: 632,000 33.4%.

Aside from raising doubts about the fulfilment of the ambitious decentralisation programme, opposition party leaders honed in on the targeting of marginal income earners by Mr McCreevy's failure to adjust tax bands. Fine Gael leader Enda Kenny said it was clear the country was moving away from being an overt low-tax economy and that the increasing numbers on the top rate were being hit by a double whammy of stealth taxes.

Labour Party leader Pat Rabbitte said Mr McCreevy's action have resulted in a greater number of people paying tax at the higher rate than at the standard rate.

"In effect, Mr McCreevy is moving towards the creation of a standard rate of tax of 42%," he said.