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

The Deputy will be aware that I am on record as stating my belief the income tax burden is too high in Ireland and that it needs to be reduced. However, I have also said that, although it is my intention to alleviate the burden, I can only do so when the public finances allow it. Lest it has escaped anybody's attention, the general Government debt at the end of 2013 was estimated to be just over €200 billion and each year in which we incur an annual deficit the figure grows. It is imperative that we, at the very least, are able to meet the interest costs on this debt, if it is not to spiral ever-upwards. Interest payments are the least productive area of Government expenditure and what we spend on interest could be put to better use elsewhere.

Although we have successfully exited the EU-IMF bailout, this does not mean that we will ever allow a return to past practices where expenditure grew to unsustainable levels, while the tax base was simultaneously hollowed out. The Government remains committed to returning the public finances to sustainability. Under the terms of the Stability and Growth Pact, until Ireland has reached its objective of a balanced budget in structural terms, we may not introduce discretionary revenue reductions, unless they are matched by other revenue increases or expenditure reductions. This means that the Government must consider carefully any tax change as any reduction will have to be offset elsewhere.

Having said this, it should be acknowledged that Ireland has a progressive taxation system which ensures the burden of taxation falls most heavily on those with a higher ability to pay. The latest data from the OECD's 2013 Taxing Wages report shows that Ireland has one of the most progressive income tax systems in the developed world. It is in this context that the Government has committed in the programme for Government not to increase the marginal rate of income tax. The programme for Government also contains a commitment not to change tax credits which, at current levels, ensure an estimated 856,000 workers are excluded from the charge to income tax entirely. The low effective tax rates for low income workers ensure their work pays and are a growth-friendly aspect of Ireland's tax system. However, against this, Ireland has one of the highest top marginal tax rates in the OECD, while also having a very low entry point to the application of the top marginal rates. These aspects are less growth-friendly owing to their negative labour supply incentives.

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Recent research from my Department has indicated that growth and employment prospects can be enhanced through a careful re-balancing of the tax system away from labour taxation towards greater use of capital and consumption taxes. Research by the OECD and the European Commission would also support such a re-balancing. These insights are useful given the fiscal constraints that I have already referred to.

As is normal practice for the Minister for Finance I have no intention of setting out planned changes to the tax system in advance of the budget, which is almost eight months away.  My officials constantly model and examine potential options for changes to the tax system for my consideration as part of the overall budget package.

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