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

I assume that Deputy Doherty was referring to the introduction of a third rate of income tax. Based on Deputy Tóibín's contribution, the proposal seems to be one of a third rate at 47% on incomes in excess of €100,000.

A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system is too high and is acting as a disincentive for work and investment. The USC measures in this Bill are a further step, following the income tax and USC measures in last year's Act, to reduce progressively the marginal tax rate on low and middle-income earners in a manner that maintains the highly progressive nature of the Irish tax system.

As the Deputy is aware, there is a commitment in the programme for Government not to increase the top marginal tax rates. A third rate of tax at 47% would increase the top rate by 7% and have the effect of increasing the top marginal rates of tax to 59% for employees and 62% for the self-employed. Furthermore, and as I stated in my budget speech, it is my intention that, if we are returned to government and as resources become available, we will progressively reduce the marginal rate to no more than 50% for all workers to make Ireland more attractive for mobile foreign investment and skills, including those of our returning emigrants.

It is important to point out the significance of marginal tax rates, as they influence individual decisions to work more or, indeed, work at all. The OECD working paper on tax and economic growth talks about "the possibility that high top marginal rates will increase the average tax rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower rates resulting in a brain drain which may lower innovative activity and productivity".

Higher marginal tax rates for earners may also incentivise a greater level of tax evasion and contribute to the development of a shadow economy. Therefore, apart from the detrimental effect I believe that such high marginal rates of tax would have on growth of the economy this kind of measure would run contrary to the commitment in the programme for Government. Although the Deputy only proposes the drafting of a report on the actions for introducing an additional marginal rate of tax, to produce such a report would introduce an element of uncertainty as to the direction of the Government's income tax policy and, as such, could be damaging to the promotion of foreign direct investment and job creation. I am not minded to expend resources on the production of the report requested by the Deputy for the reason given above and, therefore, I cannot accept the amendment.

I am well aware of the fact, and I sympathise with it somewhat, that Deputy Doherty and other Deputies are inhibited from drafting amendments that would impose a tax charge on the group. His way around it is to ask the Department to commission a report into something which gives it the same effect. I am not laying much weight on my arguments about producing a report. I can see why he is doing it. It is for technical reasons. That is fair enough, he gets the issue debated. If he were allowed to propose an amendment he could propose a third rate of tax at 47% on all income above €100,000.