The first cut is the deepest ... especially for taxpayers

THE “eagerly” awaited National Recovery Plan delivered two weeks ago paved the way for what has turned out to be a very difficult, but not unexpected, Budget 2011.

No one was under any illusions in terms of the expenditure cuts and tax-raising measures the country was facing — the finer detail set out by Minister Lenihan yesterday drives home the harsh reality that lays ahead for most households.

Over the last decade or so, the income tax system has gone through two distinct phases. 1997-2001 saw a sequence of income tax rate reductions (48% to 41% and 26% to 20%) followed by a “hollowing” out of the tax system in 2002 to 2008 where the entry to the tax system rose by 153%, from €7,238 to €18,300, together with an increase in the single rate bands/tax credits by 105% and 92% respectively. All of this culminated in a tax system where 45% of income earners paid no tax, which clearly is unsustainable, particularly where we can no longer rely on tax take from a thriving economy.