Coalition in crisis over tax reforms

Deepening divisions are emerging in the weakened Coalition because of disagreements on banking matters and tax reform.

The contentious issues of whether or not junior Anglo bondholders will be paid and retaining the universal social charge are driving a wedge between Labour and Fine Gael.

The cracks in the Coalition come at a time when support for the two parties is at an all-time low and as it faces a de facto referendum this week with another mass water charge protest.

Tánaiste and Labour leader Joan Burton yesterday ruled out the possibility of junior bondholders in Anglo Irish Bank getting a payout from the liquidation of its successor the IBRC.

She was responding to comments by Finance Minister Michael Noonan last week who said that, as the liquidation had gone “better than expected”, there was a surplus which could be used to cover unsecured creditors, who are seeking €280m.

Ms Burton said it was “completely unlikely” to happen, as the people of Ireland had to be paid first.

She also said she would “absolutely not” stand over the payout, adding: “The chance of it happening or it even being requested is remote. And, if requested, as far as I’m concerned, it would be refused.”

The Coalition are also at loggerheads on how the universal social charge is to be changed, with one Labour senator threatening to jump ship yesterday unless the charge is scrapped. Ms Burton said the charge, which brings in over €4bn a year for the exchequer, needed to be reformed over the next three to five years.

She also noted the different views between both parties on reforming the tax.

“I know some of the people speaking from Fine Gael have emphasised the upper rate cuts, but in fact the deal — it’s there in writing, it’s been published — is on focusing on low and middle income and that means a combination of continued reform over the next number of years in both universal social charge and the entry point into the top rate of tax,” Ms Burton told RTÉ.

Mr Noonan last week said the universal social charge, brought in as a temporary levy by the last government, was here to stay and some people [the lower paid] “would not pay any tax if it was not for the charge”.

The contrasting views prompted Labour senator John Whelan yesterday to threaten to leave his party unless the tax goes.

“Tinkering with the tax code will not do,” he said in a statement. “The universal social charge must go. Let no one be under any illusion on this, either the universal social charge goes, or I go.”

Mr Whelan said that Mr Noonan’s comments did “not represent or reflect” the Labour Party’s position. He later said he personally told Ms Burton last week that he would not support the next budget unless there was a long-term commitment to scrap the universal social charge.

Ms Burton’s spokesman last night also confirmed that Red C research for Labour showed that the universal social charge was a priority for voters.

However, Fine Gael Jobs Minister Richard Bruton denied there were tensions in the Coalition over the issue.

The contrasting views on the issues between both parties come as the Coalition faces a challenging week. Taoiseach Enda Kenny faces a motion of confidence, the first in the Coalition’s term.

Tens of thousands of protestsrs are expected to attend a mass demonstration against water charges in Dublin on Wednesday.