Public finances - Few options but a lot of hard choices

Siptu chief Jack O’Connor, one of the union leaders who supported the Croke Park II deal, yesterday returned to the idea of increasing income tax for those earning over €100,000.

Mr O’Connor suggested that a new tax rate dealing with income above €100,000 might deliver the kind of savings that would make the €300m cut in the public sector pay bill for the remainder of the year unnecessary. Even if you put aside Fine Gael’s repeated rejection of that idea — usually counterbalanced by Labour voices advocating it — it is hard not to think that a new higher tax rate and cuts to public sector pay will both play a part in balancing the books before our economic crisis is resolved.

Fine Gael has insisted that they will not increase taxes on work but the rejection of Croke Park II changes the viability of their argument as does a renewed European focus on our relatively low corporation tax. To what extent they will hold the line depends on the Government’s stomach for a war on two fronts — the unions opposing cuts and advocating a new high rate of income tax and business lobbies diametrically opposed to those two arguments.