Gerald Nash (Louth, Labour) | Oireachtas source

I move amendment No. 5:

In page 15, between lines 6 and 7, to insert the following: "Tax credits, etc.: report on cost of indexation

10.The Minister and the Minister for Public Expenditure, NDP Delivery and Reform shall include in their Summer Economic Statement in each year a report setting out the estimated cost to the Exchequer of adjusting—

(a) tax rate bands and tax credits and allowances in relation to income tax, and

(b) benefits and allowances payable under the Social Welfare Acts, to reflect any changes in the All Items Consumer Price Index numbers published by the Central Statistics Office in the 12 months before the date of the Statement.".

This has to do with the indexation of tax credits and rate bands against inflation. In this case it is with regard to the consumer price index but there are various ways of approaching the question. Yearly inflation adjustment is done in tax systems throughout the European Union, in countries such as Sweden, Denmark, Finland, the Netherlands, Belgium, France, Slovakia, Norway and Switzerland. I understand that Germany does it every two years. This is to avoid what might be described as bracket creep. In other words, if income increases modestly people would not fall into a higher tax bracket and this in itself would be a positive. Austria will introduce the measure this year. It has considered it for a number of years and I understand it will do it this year. The mechanism it has adopted would trigger a two-thirds automatic adjustment for all brackets except the highest bracket. The remaining adjustments would, quite appropriately, be a matter for the political system.

I was rather taken by some research I read recently and a point made by the Tax Foundation. It stated this type of approach gives taxpayers more certainty and keeps politicians honest. It is an approach that is worth considering. A degree of reform of indexation as we might describe it has taken place this year.

The Minister has adjusted USC rates, bands and credits, as well as income tax bands and credits. For example, indexing for an average 3% pay increase could cost €700 million to €800 million for next year, not an insignificant amount. Such an approach, following what other progressive, sophisticated European Union societies are doing, takes the mystery out of the annual budget process. I accept decisions around taxation and redistribution are the meat and drink of politics and sometimes separate us in this House, philosophically and ideologically, for want of a better description. However, these are the kinds of questions that have been settled in other European states. It would be useful for this State to follow that progressive example.

As I said on Second Stage and on budget day when I put forward this proposition, it would be the mark of a mature parliamentary democracy and society to decide on a form of indexation of tax rates, bands, credits and allowances every year, to do that routinely and to do that as well in the context of the social welfare system. That would come at a cost but would be a good thing for our society. Then, on budget day and in the run-up to it, we could deal with the big questions and challenges the country faces.

The budget process seems to start earlier every year and, as currently designed, benefits only two sectors: one is the Government, whose members can spin away all summer and fly kites to their heart's content about what will be in the budget and what might not be; the other is the media, which has an obsession with what happens in the budget, when it is ordinary people who pay the price and are impacted by the decisions we make in these Houses every year. One way of signalling we have become a sophisticated, modern, progressive, responsible democracy is to settle these questions and have consensus around them.

This amendment asks merely for a report to be published every year in the summer economic statement setting out the established cost to the Exchequer of adjusting:

(a)tax rate bands and tax credits and allowances in relation to income tax, and

(b)benefits and allowances payable under the Social Welfare Acts,

It further asks that that would reflect any changes in the all-items consumer price index, or another mechanism to be settled. I am interested to hear the Minister’s position on the proposal.