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

We legislated on the local property tax last year to ensure there was no increase in valuation until 2019. There will be nothing in this budget and no separate local property tax amendment Bill being introduced this year because the principal issue was resolved last year.

On the USC and marginal rates of tax, the literature would say that once there are high marginal rates of tax, it begins to affect the economy in an adverse way. The argument then is about what are those levels. I do not know whether the Deputy ever read Professor Laffer who was a great adviser to President Reagan. There is something called the Laffer curve. I am not a disciple of Laffer but some of the things he says are interesting. If something is taxed at zero there will be no revenue, but if it is taxed at 100% there will also be no revenue. There must be a sweet point in between where it is possible to maximise the revenue.

Finding that point is a great skill and there are no rules about it. Many tax experts or economists would say that once one pushes one's tax over 50%, it seems to have some kind of psychological effect on people and that a marginal tax rate where one is taking half of what people earn might be just about manageable, but if one goes beyond that and one is taking in tax more than half of what people earn, then it has an adverse economic effect. As for where it hurts us, high marginal rates of tax discourage key employees coming with multinational investment into companies that set up in Ireland. I am talking about foreign nationals coming in. One aspect they look at is their take home pay and the marginal rates of tax are important in that regard.

The other place where marginal rates of tax are studied carefully is in the context of the young Irish abroad who want to come home. Committee members will be familiar with the folklore that when the children are about primary school-going age and the eldest is four, the emigrant couple in Australia or the United States think of coming back to Ireland and start running the numbers, but they find they cannot afford it. One of the reasons they cannot afford it is the marginal tax rate. I suppose I am talking more anecdotally than giving the committee any proof, but there is no doubt at all that the marginal tax rate has an effect on economic behaviour, on choices and on the labour market. It is a question of where one pitches it to ensure that one eliminates the worst effects and at the same time protects the revenue.

The marginal tax rate is too high at present. There was never a policy intent to have it that high by the second last Government. It was merely that it needed the money and USC was introduced as an emergency tax in an emergency situation. The reason I am reducing USC rather than income tax is before one starts looking at the income tax code, one should take out the emergency taxes first.

Much of this is theoretical in the context of this year's budget. We have €330 million or so for tax measures. Once one takes €1 billion and divides it two-to-one in favour of expenditure, which seemed to be one of the lessons of the election, which lesson is incorporated in the programme for Government, we have reasonably significant resources this year above last year's budget but the bulk of it is dedicated to increased expenditure - the committee can have that conversation with the Minister, Deputy Donohoe, tomorrow. No matter the theory, the affordability of implementing desirable measures will be the principal issue on the tax side in this budget and most of what I would like to do is not affordable. I do not have the money.

The committee can see it as a new start to a three-year phase of budgets, which Fianna Fáil states it will support. I do not want to be taking once-off initiatives budget to budget and changing my policy mind in different budgets. I would like to commence the process in this budget and signal that what we are doing here and now is the way forward, that we will build on this in budgets two and three, and we will see where we are after that. The resources are very limited this year, however, and I have no expectation that taxpayers will be throwing their hats in the air on budget night.