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

I thank the Deputy for his question. The period from 2008 to the present saw one of the largest and longest periods of fiscal adjustment in the history of the State. The budget deficit in 2011, when the Government came to power, was unacceptably large and unsustainable, at an underlying level of 8.6% of GDP. In budget 2015, I set a deficit target for 2015 of 2.7% of GDP. Reflecting this progress in reducing the deficit, our debt burden is now firmly on a downward trajectory, with forecasts indicating that it will fall below 100% of GDP after 2017. Reflecting these improvements, our credit rating has seen repeated upward revisions by ratings agencies.

A consolidation of such scale necessarily resulted in a drop in living standards for all citizens of this country. Despite the enormous challenge of such an adjustment, the Government has ensured that the richest in society bore their fair share of the burden and that the poor and most vulnerable were protected as far as was possible.

The latest research from the ESRI on the distributional impacts of budgets for the period 2009 to 2015 shows that the top quintile bore the largest burden of income tax and welfare changes over the period, with income losses of approximately 13% to 14%. The impacts on those in lower quintiles were all in the region of 10%. This reflects the Government's firm commitment to make sure those who could afford to pay the most did so.

Analysis published in the budget book shows gains to all household types from budget 2015. For example, a single earner on an annual income of €25,000 will gain €174 per annum; a married one-earner couple on €35,000 will gain €174; and a married one-earner couple with two children on €55,000 will gain €626 per year. These gains reflect the Government's commitment to helping those on lower and middle incomes.

Analysis of the taxation measures in the budget based on the ESRI SWITCH tax-benefit model indicates that all household deciles will gain from the income tax measures in budget 2015. Some of these gains arise from the increase in the exemption threshold for the universal social charge, USC, which had the effect of removing lower-income people from liability for the charge. This is second time the Government has done this. This means that all individuals with income below €12,012 will be entirely exempt from the USC. The Government also reduced the lower USC rates and increased the thresholds, delivering further benefits to those on lower incomes and ensuring fairness. At the same time, the benefits for any individual from the income tax package were capped by introducing a new higher rate of USC for high-income individuals, thus maintaining the progressivity of the system and ensuring that those on high incomes did not benefit over and above what is fair.

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These changes occur against the backdrop of Ireland's having one of the most progressive income tax systems in the OECD.

Cognisant of the effect of indirect taxes on living standards, especially for those on lower incomes, this budget contained limited changes to indirect taxes. The increase in excise on cigarettes is motivated by the negative health outcomes of smoking, and the main increase in indirect tax revenue resulted from a technical change whereby VAT is charged for cross-Border EU telecommunications, broadcasting and electronically supplied services.

The tax measures outlined are designed not only to extend the recovery across the economy but also to strengthen the recovery for the future. These reductions in tax have the effect of increasing the reward from employment. They lower the cost of employing people, which will help create jobs. Indications from the ESRI HERMES macroeconomic model show that up to 15,000 jobs could be created from the reductions in labour taxation when the full effect of the tax reforms that will be introduced over the next three years is evident.

As a result of the decisions made by the Government and the emphasis we have placed on minimising the negative effects on economic growth from fiscal consolidation, our country is now in recovery. My Department is forecasting growth of 4.7% of GDP in 2014 and 3.9% in 2015. On a no-policy-change basis, my Department would have forecast GDP growth in 2015 of 3.6%, but as a result of the measures outlined in the budget this has been increased to 3.9%. It is clear from the analysis demonstrating the positive distributional and growth impacts of budget 2015 that it does not need the changes the Deputy suggests.

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