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

People going to work in a particular jurisdiction take a range of factors into account but we would have a lot of information from IDA Ireland and from individual cases to show that one of the factors when a family decides to return to Ireland is they look at the bottom line on what would be their take-home pay. While the gross figures might be attractive, the bottom line, when one allows for the tax take in Ireland, is an influence and sometimes they cannot afford to come home. This is true for young Irish people in London and in the United States. The decision point, according to IDA Ireland, is usually when the first child is about to reach primary school age. That is when Irish emigrants abroad begin to decide about coming home, and it is a factor. It is also a factor - we hear this quite frequently - in comparisons being made between those who work in Northern Ireland and those who work in the Republic.

To take Deputy Donnelly's argument to its logical conclusion, one would have to agree that tax rates do not matter and that regardless of the level of tax rate, it does not have an affect on decision-making in respect of whether to come back to Ireland or whether to go to work in the first instance. Deputy Donnelly is correct on the generality of cases that if one is unemployed and a job comes up, taking the job is the first consideration and one might not like the tax rate that one would have to pay but one needs the job and one takes it. However, where it hits on the labour market domestically is the second income in the house. If the spouse or partner has an offer of a second job, then the marginal rate of tax becomes an issue because, effectively, the assessment is whether it is worth the spouse or partner's while going back and whether is it worthwhile going back for the resulting net increase in family income when one takes all the other expenses of returning to work into account. That is an issue.

The first question the Deputy asked related to whether I would agree that extra taxes have to be paid because of demographics and the fact that additional services are needed. Extra taxes have to be collected but that does not mean that tax rates have to increase. For example, between the estimated outturn for this year's budget in 2016, which is €48.135 billion, and the estimated tax take for 2017, which is €50.62 billion, there is a difference of €2.5 billion. Apart from an increase of 50 cent in the price of cigarettes, the rest of it is due to the buoyancy from a growing economy, extra people at work and extra spending power. My argument is that as the tax take from the growing economy increases, as it will by €2.5 billion year on year between 2016 and 2017 - as well as acknowledging the fact that extra services are required for demographic reasons but also as a result of the damage that was done to the services during the eight years of recession - taxpayers have to be looked after as well. At a minimum, to take Deputy Michael McGrath's point, taxpayers have to be compensated for inflation so that the purchasing power of their incomes is maintained. That would be the minimum position. Ultimately, it is principally the 2 million people at work who drive the economy and one just cannot keep piling taxes on them.

I do not disagree with the Deputy's general proposition that there was a mood at election time which put great emphasis on improving services -I refer, for example, to better educational and health services, etc. - but the electorate is not homogeneous either. There was a cohort of people who wanted lower marginal tax rates as well. There is not a straight cross-match between the policies the parties put forward and the results they got in elections. If there were, there might have been a different result. My party got the biggest vote in the election and the largest number of seats and we were identified more with the USC reductions than with the improvement in services. However, we took the message that was delivered by the electorate. In the negotiations for Government, we agreed that the available resources - the €2.5 billion or so that is available year on year - would favour expenditure rather than tax reductions in proportions of at least 2:1. That is what is written into the confidence-and-supply agreement with Fianna Fáil and into the programme for Government. If one measures this budget, it is actually approximately three to one rather than two to one. For the management of the economy and the labour force and for the incentivisation of people - and keeping the 2 million individuals at work reasonably happy - it is important that we move on the tax side as well. I am not saying what should be the exact figure. That is all I am saying.

The bottom line is that the worker getting his or her weekly wage on a Thursday or Friday evening and looking at the piece of paper that accompanies it, does not really make a lot of distinction between whether the deduction relates to USC or income tax. It is personal taxation and it is a deduction from the gross to bring about the net amount. I would maintain that while, from a tax collection point of view, USC is very efficient, from a taxpayer's point of view it is a less fair tax than income tax because it is flat-rated in its percentages. In terms of making some modifications to reduce the impact of personal taxation, we decided to approach it through USC. I am open to the argument that it could be done in a different way but with reasonably similar economic results if it was done through income tax. Why have two different personal tax regimes, however, particularly when PRSI is thrown in as a kind of third leg and the marginal tax rate is the sum of the three?

That is my position. It is not that I disagree with the Deputy. It is just I have a difference of emphasis. There was an election. Often it is difficult to interpret results of elections into precise policies, but there certainly was a general tendency to the effect that many people wanted public services repaired and funded more adequately than was the case at the time. We have taken that on board.