Michael Noonan (Limerick City, Fine Gael)

If it is, it should test it out on the people in the next election, but we fundamentally disagree with that approach.

The majority of revenue adjustments to date have been achieved through increases in direct taxation. The marginal rate of taxation on income is now 52% for PAYE workers and 55% for the self-employed. The OECD has concluded that Ireland has the most progressive tax system of the EU members of its organisation and revenue records show that the top 5% of income earners pay 44% of income tax. When the marginal rates of tax are very high, jobs are lost. Indirect taxes have a less adverse impact on employment. That is why in this budget indirect taxes rather than taxes on income are being increased. That does not mean that the wealthy should not carry the principal burden of tax. The minimum effective tax restriction on high earners is designed to ensure this by imposing a minimum effective income tax rate of 30% for those subject to the full restriction. In addition, they are obliged to pay 4% in PRSI and up to 10% in the universal social charge, bringing the minimum effective rate to 44%. This is a major and entirely justifiable change from the situation that prevailed a short number of years ago when a small number of them paid no income tax at all. Reports from the Revenue Commissioners indicate that the restriction is working. I will keep this restriction under review and may return to the topic in budget 2013, depending on the conclusions of a forthcoming Revenue report.

Universal Social Charge

I refer to another fairness measure we are introducing today. When the Government was planning this budget, it decided that it had to create jobs but that it had to be fair. It has two primary objectives. As a fairness measure, we have reviewed the impact of the universal social charge and I am pleased to announce that today I am proposing changes to the charge that will help the low-paid, part-time and seasonal workers in labour intensive areas such as the hospitality sector and farming. From 1 January 2012, the exemption level will be raised from €4,004 to €10,036.

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