Owen Reidy: Simplistic approaches to taxes will ultimately hurt workers

'Tax cuts are a blunt instrument.' File picture

Over recent weeks and months, Government ministers have said that Budget 2027 will be one that “makes work pay”. 

As the representative organisation for more than 800,000 workers across Ireland, we welcome this commitment.

However, a simplistic approach to income tax will ultimately do workers a disservice.

Since taking office, the Government has capitulated to both the hospitality sector and agricultural contractors, on scant evidence of need, at a cost of over €1bn. 

Each of these only served to undermine public finances at a time when there have been repeated warnings over the narrowing of the tax base.

Meanwhile, minister Peter Burke, whose department has responsibility for employment, appears to see his job as rolling back employment rights introduced under the previous Government.

Any pledge to support workers is therefore welcome, but will amount to little if it comes wrapped in a simplistic, short-term approach that has marked the Government’s approach to workers thus far in its term.

In particular, for Budget 2027, the conflation of tax indexation and tax cuts risks undermining the fairness of our tax system. 

Indexation is fair, sensible, and necessary. Tax cuts would simply continue to erode our tax base, and consequently, public services.

Indexing the tax bands means adjusting the rate upwards to reflect either inflation or increases in pay across the economy. 

Owen Reidy, secretary general of the Irish Congress of Trade Unions. Picture: Sam Boal/Collins Photos

For example, if pay or inflation is projected to be 3.5% to 4%, the current tax bands would be increased by the same amount. 

This is keeping the tax system in equilibrium, and ensures that inflation does not cause a stealth tax increase for workers.

Tax cuts, however, are a blunt instrument and one that would mean a lot more money for those on €150,000 a year than those on €50,000 a year. 

They may be the shinier political bauble, but they disproportionately benefit those on higher incomes.

For illustrative purposes, if the Government index the bands and credits by 6% (which is the minimum required for double indexation as they did not do it last year) a single worker on €50,000 would be €576 better off a year. 

For the single worker on €150,000 a year with the same 6% indexation, they’d be €576 better off.

However, if the Government cut the top rate of tax by 2%, the same worker is a mere €80 better off a year, while the high earning single worker on €150,000 a year is €2,080 better off, which is a multiple of 26.

The trade union movement has been very clear with the Government on this. 

We have engaged in a series of meetings through the Labour Employer Economic Forum about the budget during the summer.

Our view is that the Government must implement double indexation, which would correct for the failure to index tax bands last year, as well as
accounting for the year ahead, in conjunction with other measures to support workers.

If the Government wishes to reward work while supporting our public services, that is the way to do it, rather than the sledgehammer approach of tax cuts.

Equally simplistic has been the debate on inheritance tax. 

Government has suggested that the threshold will be increased. 

There is a rich irony in Government saying the budget will focus on making work pay, while also pledging to increase inherited wealth.

But in many ways, that discussion misses the real target. 

How many workers realise that if someone inherits a business or land, the threshold before you pay tax is €4m, a ten-fold difference to the €400,000 an individual can receive tax-free? 

If the Government wants to ensure that work pays, there should be a broader debate about tax, and in particular, moving the burden of taxation away from labour and onto wealth.

The Commission on Taxation and Welfare, which reported in 2022, made efforts in this direction, setting out an à la carte menu of options to broaden the tax base. 

Regrettably, the report has been left to gather dust. 

At a time when numerous analysts are urging the Government to reduce its reliance on corporation tax, and the Government says it wants to support workers, a re-examination of the commission’s proposals would seem an obvious starting point.

Workers deserve better than short-term retail politics. 

A pledge to correct the mistakes of last year’s budget and deliver on tax indexation is welcome. 

What would be much more beneficial is an honest assessment of our tax system, who it privileges, and how sustainable it is, because we know from history that, if another crash comes, it will be workers that will be expected to pay.

Workers have witnessed this Government facilitate hospitality, agricultural contractors, and hauliers, as those sectors campaigned aggressively, and protested legally and illegally.

If Budget 27 fails to address workers' interests and needs sufficiently, there will be no more ambiguity around what is required to be heard and heeded by this Government.

• Owen Reidy is secretary general of the Irish Congress of Trade Unions