Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I do not have a lot of disagreement with Deputy McGrath. When we debated this on budget night I said to Deputy McGrath and Deputy Boyd Barrett that we are fortunate to have choices again. What Deputy McGrath proposes is one way of doing it, and there are certain advantages to it. However, the reason I opted for cuts in USC were twofold. Firstly, the rate of personal tax is the big disincentive in terms of job creation and getting emigrants to return. People do not get it when one tricks around with credits and bands. If a person is working in London, Sydney or New York and is thinking of coming home, they will ask what the pay rates at home are. It is the rate of tax that jumps off the page. Unless the rate is changed, the priority - after tax rates being so high and after the tax take being so high - is to incentivise by reducing rates. That is not to say that a future Minister in a future budget would not, quite rightly, move credits and move bands. The international literature on tax reductions will always concentrate on the rate as the big driver and incentive. The literature would also argue that once the 50% rate is passed it can cause big trouble. If a person says "If I work overtime I will get €100, but €55 of that is gone in tax," the incentives are out the gate at that stage. It has to be kept below that rate.

There are other reasons for the credits and the bands. Raising the standard income tax credits would, in general, only have benefitted those earning more than €16,500 per year, as this is the level of income already sheltered from income tax by the personal tax credits. One of the reasons I chose to make changes in the USC which will benefit all those who are earning €12,012 or more is that raising the exemption threshold at which USC becomes chargeable from €12,012 to €13,000 per annum will remove an estimated 40,000 individuals from liability to the charge entirely. The reduction in the three lowest rates of USC will benefit 1.5 million extra people. What the Deputy is proposing does not do what it says on the tin either because those on incomes below €16,500 get no advantage.