Ann Phelan (Carlow-Kilkenny, Labour) | Oireachtas source

I move amendment No. 1:

To delete all words after “Dáil Éireann” and substitute the following:

“acknowledges that the consolidation effort necessary to correct what had become an unsustainable fiscal position has necessarily led to a reduction in incomes and living standards for all groups in society;

notes that:

— the Budgets 2009-2015 had the greatest cumulative impact on household disposable incomes for those in the top decile;

— consolidation of the public finances was paramount and this was conducted in a phased and progressive manner;

— the Government’s budgetary policies have contributed to a turnaround in the fiscal position with the underlying budget deficit falling from €18 billion (or 11 per cent of GDP) in 2010 to just over €5 billion (or 2.7 percent of GDP) in 2015 with the debt-to-GDP ratio declining from 123 per cent of GDP in 2013 to below 109 per cent in 2015; and

— between 2008 and 2014 the gap between the day-to-day spending of the State and taxes collected, that is the underlying deficit, added €100 billion to our debt levels;

notes:

— the strong recovery now underway in the economy, with GDP estimated to have grown by 4.7 per cent in 2014 and projected to grow by 3.9 per cent in 2015;

— that the best route out of poverty is a job and the Government is determined to return the economy to full employment by 2018;

— the progress made to date in this regard and the turnaround in the labour market with employment having increased by over 84,000 since its low point in the third quarter of 2012 and the fall in the unemployment rate of 4.5 percentage points in just three years;

— the highly progressive nature of the income taxation system, with the tax wedge on those at 167 per cent of the average wage as a percentage of those on 67 per cent of the average wage, the second highest in the OECD; and

— the fact that the tax and welfare systems are highly effective in reducing market income equality with the Irish tax and welfare system the most effective in the OECD at reducing market income inequality and that disposable income inequality in Ireland is in line with EU and OECD averages;

further notes that:

— in the face of extraordinary fiscal pressures the Government has maintained core welfare payments, thereby supporting a basic standard of living for welfare recipients;

— the main beneficiaries of the income tax and the Universal Social Charge (USC) changes introduced by the Government in Budget 2015 were those on low and middle incomes and the Government’s intention is, subject to fiscal constraints, to continue to introduce further changes of this nature over the coming years;

— the top 1 per cent of income earners, who earn over €200,000, are projected by the Revenue Commissioners to pay 20 per cent of all income tax and USC in 2015;

— corporation tax revenue collected in Ireland is broadly in line with the EU average and that, in 2013, corporation tax receipts were just over €4.2 billion, which is 11.3 per cent of overall Exchequer tax revenue and equivalent to 2.6 per cent of GDP;

— the increase in net household wealth in recent years is largely driven by increases in house prices and that home ownership is relatively evenly distributed across the income distribution; and

— the Government already carries out an extensive distributional analysis of changes in budgetary policy and its intention to augment this analysis through the preparation of a social impact assessment of future budgets;

further notes the recent announcement of the Government’s Social Housing Strategy 2020 and the Government’s commitment therein to deliver 35,000 new social housing units over the period to 2020;

notes that:

— the consistent poverty rate for older people has declined, from 2.6 per cent in 2012 to 1.9 per cent in 2013, which at present would meet the national social target for poverty reduction for this group;

— the consistent poverty rate for people with illness/disability has reduced by 6.8 percentage points to 10.8 per cent in 2013;

— the Government remains committed to meeting the national social target for poverty reduction, which is to reduce consistent poverty to 4 per cent by 2016 and 2 per cent or less by 2020;

— Government recently adopted a child-specific poverty sub-target which is to reduce the number of children in consistent poverty by 70,000 by 2020, a reduction of two-thirds on the 2011 level;

— the aggregate cost of abolishing the Local Property Tax, Water Charges, and USC for those earning under €35,000, as well as reversing the social welfare measures, as proposed by opposition Deputies, would be an estimated €4.25 billion; and

— the required increase in the 40 per cent income tax rate would be 19 per cent, resulting in a marginal tax rate including USC and PRSI of 71 per cent for PAYE taxpayers which would reduce GDP and employment substantially; and

calls on the Government to continue to implement its successful socio-economic policies which provide the basis for continued increases in employment, reductions in unemployment and improvements in living standards particularly for those on lower and middle incomes.”

The motion proposed by a number of Deputies from the Technical Group is unbalanced and fails to recognise what the Government has achieved in difficult circumstances over recent years. I wish to highlight the seriously adverse consequences that would follow were the proposed tax increases and other measures referenced by Opposition Deputies to be adopted.

I will set out recent economic developments and prospects. After a long period of economic stagnation and uncertainty, the economy has finally returned to strong and sustainable levels of growth. The Department of Finance estimates that GDP grew by 4.7% in 2014. The GDP growth forecast for 2015 is 3.9% and the Department foresees growth rates of approximately 3.5% over the medium term. This is the type of solid and steady economic growth that we want to see in the coming years. If realised, it will lay the basis for tackling a wide range of economic and social issues over that period to the end of the decade.

The turnaround in the economy is down to the difficult decisions taken by this Government and the sacrifices made by the people. Thanks to strong revenue growth on foot of a stronger economy and allied to effective expenditure management, the budget deficit for 2014 was an estimated 3.7% of GDP. For 2015, we are targeting a deficit of 2.7% of GDP, which is beyond the requirements of the Stability and Growth Pact.

Getting our public finances under control is a critical step in laying the basis for improvements in living standards, including for the more disadvantaged in our society. In particular, growth rates of this magnitude will provide the basis for increases in employment and reductions in unemployment. Jobs are the key Government priority as they represent one of the best ways of lifting people out of poverty. We are already seeing the consequences of this focus in the strong employment performance over recent years. We have now had eight consecutive quarters of solid annual employment expansion, with more than 84,000 jobs created since the low point in the third quarter of 2012. Over 90% of the jobs created are in full-time positions. The recovery in the labour market is broad-based with virtually all sectors in the economy experiencing employment growth. Encouragingly, in excess of 10,000 jobs have been created in the construction sector over the past two years. The unemployment rate has fallen steadily by four and a half percentage points in three years. The number of people unemployed has decreased by 87,000 since the peak in the first quarter of 2012. The reduction in unemployment has been concentrated among the long-term unemployed, those unemployed for one year or more, with the number of long-term unemployed people falling by 65,000 since the first quarter of 2012.

The Government has prioritised actions to address the issue of youth unemployment by improving employment prospects for young people through schemes such as JobsPlus, JobBridge and First Steps. These policies have helped youth unemployment rates fall by eight percentage points in two years.

Unemployment is still too high. Through the Action Plan for Jobs we are working to make further inroads. Among other measures, we are improving job search, investing in training for the unemployed and ensuring work incentives remain strong. As a result of the success of the Action Plan for Jobs, which began in 2012, the Government has now brought forward its target of reaching full employment by two years, that is to say, we expect to achieve full employment by 2018, with 2.1 million people at work.

I will outline the benefits of the tax package. A fair, efficient and competitive income tax system is essential for economic growth and job creation. The burden of the income tax system in Ireland is too high and is acting as a disincentive for work and investment in Ireland. The income tax measures announced in the budget are the first stage of a multi-year plan to reduce progressively the marginal tax rate on low and middle-income earners in a manner that maintains the highly progressive nature of the Irish tax system. As outlined on budget day, the Department of Finance estimates that a three-year reform plan along these lines could boost employment levels by as much as 15,000 jobs when the full impact of the changes have taken effect in the economy. The budget measures were primarily targeted at the squeezed middle, which the Government has defined as the cohort earning approximately between €32,000 and €70,000. The Government has also acted to ensure that those on high incomes do not benefit disproportionately from the budget by capping the benefits for those with incomes in excess of €70,000.

The tax package provided for a reduction in the top rate of income tax from 41% to 40%. It also extended by €1,000 the standard rate band on which income tax is chargeable at the lower 20% rate. Together with the accompanying reductions in the two lower rates of universal social charge and extension to the threshold at which USC becomes payable, the budget provisions will ensure that all those who currently pay income tax or USC will see a reduction in their tax bill this year. The measures will also ensure that those on the minimum wage will now only pay a maximum USC rate of 3.5%. As a result of the reduction in the higher rate of income tax from 41% to 40%, the marginal tax rate has been reduced for all income earners who currently earn under €70,000 and pay income tax at the higher rate. It remains unchanged for PAYE and self-employed workers earning more than €70,000. For example, a self-employed person earning €100,000 faced a marginal tax rate of 55% in 2014 and will continue to face a marginal tax rate of 55% in 2015.

The budget also provided for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to those aged over 70 with incomes which do not exceed €60,000. Again, this is down from the 4% rate. These changes are designed to ensure that work pays, to help the transition from unemployment and to remove potential barriers that may be deterring part-time workers from taking on additional hours of employment. The resulting increases in take-home pay will have follow-on benefits to businesses and jobs in the domestic economy. The changes announced in the budget will ensure that all those currently paying income tax or USC will see a reduction in their tax bill this year. The Government proposes to continue this reform in future budgets subject to the required economic growth and the consequent fiscal space being available to the Government.

This Government has met the challenge of fiscal consolidation by protecting the most vulnerable. This has been achieved in part because of the focus of the Government on understanding the impact of its budgetary policy on its most vulnerable citizens and by ensuring those with the most pay the most. The result of this focus can be seen. The most recent analysis from the ESRI, published after budget 2015, covering the budgets for the periods 2009 to 2015, indicates that the top decile of the household income distribution lost the highest share, some 15% of their disposable income. That these distributional outcomes occurred at a time of such economic and fiscal pressure reflects the Government's strong commitment to fairness in formulating budgets.

In addition to the ex postsocial impact assessment of budgets that the Department of Social Protection publishes, the Government has also committed to carrying out an ex antesocial impact assessment of future budgets. This will help ensure that distributional outcomes from possible budgetary changes are fully analysed. The statement of priorities published by the Government in July 2014 included a commitment for an income tax reform plan in a manner that maintains the highly progressive nature of the Irish tax system.

Ireland has the most progressive tax system of the EU members in the OECD. Indeed, Ireland is the second most progressive of all members of the OECD. The changes introduced in budget 2015 will be such that the top 1% of tax units by income will pay 20% of all income tax and USC collected in 2015, up from 19%. In contrast, the bottom 76% of income earners will pay only 21% of all income tax and USC collected.

Commentators have recently highlighted that market income inequality in Ireland is the highest in the OECD. One of the main reasons for market income inequality is the number of jobless households in Ireland, which is the largest in Europe. What they have failed to highlight is that the Irish direct tax and social welfare system is the most effective at reducing income inequality in the OECD. This is demonstrated by the performance of the Irish tax and social welfare system in reducing inequality of income after taxes and social transfers are taken into account, resulting in the largest reduction in the OECD. As a result of the Irish tax and welfare system, disposable income inequality has not changed significantly over recent years and is in line with other OECD countries.

This Government maintained core welfare payments in the face of extraordinary fiscal pressure, thereby supporting basic living standards for the citizens of Ireland. The importance of this cannot be overstated. CSO data from SILC shows that in 2013, before social transfers, the poverty rate - that is, the proportion of people on incomes below 60% of the median income - was 49.8%, while the poverty rate after taking account of social transfers was 15.2%, a fall of almost 35%.

The Government remains committed to meeting the national social target for poverty reduction, which is to reduce consistent poverty to 4% by 2016 and 2% or less by 2020. In addition, the Government recently adopted a child-specific poverty sub-target, which was to reduce the number of children in consistent poverty by 70,000 by 2020, a reduction of two-thirds on the 2011 level.

The total cost of the proposals outlined in the original motion - abolition of the local property tax, water charges and USC for those earning under €35,000, as well as the reversal of various social welfare measures - would be an enormous €4.25 billion, with no proposals for how the Government could finance such an enormous sum of money without stifling economic growth or taking on even more debt than that which currently exists, risking further instability in Ireland's future. The motion merely calls for the Government to finance the above outlined measures through taxes on wealth, on profits and on top earners. To attempt to finance the above measures through increased taxes on those tax bases would have serious repercussions for the economy which would be felt by everyone across all income distributions.

The increase in the top rate of income tax that would be required to finance the reductions the motion has outlined would be approximately 19%, although this does not take account of the wider economic implications of having a marginal effective tax rate of 71% for those earning over €70,000 in PAYE income, and a rate of 74% for those earning over €100,000 in self-assessed income. The impact of this on the economy through reduced incentives to work and our ability to attract FDI would be enormous. It would also be grossly unfair. As I have already outlined, the tax system in Ireland is hugely progressive. Ireland already has a number of taxes on wealth. Capital gains tax and capital acquisitions tax are, in effect, taxes on wealth in that they are levied on an individual or company on the disposal of an asset for the acquisition of assets through gift or inheritance tax. Deposit interest retention tax is charged at 41%, with limited exemptions on interest earned on deposit accounts. Local property tax is based on the market value of residential properties.

The addition of a wealth tax, as is normally advanced by some members of the Technical Group and other commentators, would create a risk of capital flight, with negative impacts on investment in the economy. Where tax is levied on movable capital, there is a significant risk that these assets would be moved outside the jurisdiction and outside the Irish tax system. Apart from the fact that no tax revenue would be generated on this capital, it would mean that such capital would not be available to invest in the Irish economy. Investment is key to spurring economic growth, which Ireland needs to create jobs. Wealth taxes can be effective where they are set at low rates and levied on immobile assets such as residential property, which reduces the incentive and capacity of taxpayers to avoid liability for wealth tax.

On the subject of wealth, I note that the rise in net household wealth that has occurred in recent years has been highlighted by Deputies. One of the main drivers of this rise in household wealth has been increases in house prices. Home ownership is high in Ireland compared to other countries and is relatively evenly distributed across the income distribution compared to other forms of wealth. For example, 60% of people in the bottom fifth of the income distribution own their main residence, compared to 89% of the top quintile. As would be expected, the main residence forms a significant proportion - over two-thirds - of the wealth of those in the bottom quintile, compared with 45% for the top quintile. As such, changes in house prices have less of an adverse effect on the distribution of wealth than changes in the value of other forms of wealth.

The Government has no plans to raise the 12.5% rate of corporation tax, as the maintenance of this rate is of paramount importance for Ireland's economy. Ireland, like many smaller member states, is geographically a peripheral country in Europe. A competitive corporate tax rate is a tool to address the economic limitations that come with being a peripheral country when compared to larger core countries. Ireland's corporation tax rate plays an important role in attracting FDI to Ireland and, therefore, in increasing employment here. The FDI sector supports more than 150,000 jobs in Ireland, and changes in the corporation tax rate would threaten these jobs.

This stated position is supported by strong evidence resulting from extensive research undertaken by the Department of Finance in 2014 which sought to quantify the effect of corporation tax policy on the Irish economy. This independent research found that if Ireland had increased the 12.5% corporation tax rate, it would have considerably reduced the amount of foreign direct investment into Ireland. There is research by the OECD and others that points to the importance of low corporate tax rates to encourage economic growth. The Revenue Commissioners have highlighted that corporation tax revenue collected in Ireland is broadly in line with the EU average. In 2013, corporation tax receipts were just over €4.2 billion, which is 11.3% of overall Exchequer tax revenue and equivalent to 2.6% of gross domestic product.

I note that the original motion called for an increase in the number of social housing units provided in the next five years. I hope Deputies are aware of the publication in November 2014 of the Social Housing Strategy 2020, which builds on the provisions contained in budget 2015 and sets out clear, measurable actions and targets to increase the supply of social housing, reform delivery arrangements and meet the housing needs of all households on the housing list. The Government has targeted provision under the social housing strategy of over 110,000 social housing units through the delivery of 35,000 new social housing units, while meeting the housing needs of some 75,000 households through the housing assistance payment and rental accommodation scheme. This will address the needs of the 90,000 households on the housing waiting list in full, with flexibility to meet potential future demand.

The Government's record on ensuring equality in Ireland, while undertaking the enormous fiscal consolidation required of it when it took office in 2011, is strong. This has been achieved through maintaining and enhancing a tax and welfare system which is highly progressive and redistributive, ensuring that those with the most pay the most. As a result, the recent strong economic growth and job creation have allowed a reduction in the tax burden on low and middle incomes. Combined with the provision of social housing as described in the Social Housing Strategy 2020, this will contribute significantly towards achieving the Government's national social target on poverty reduction by 2020.

The House should acknowledge that the Government should continue with the policies that have proven so successful in ensuring that the fiscal consolidation required has been achieved in a fair and growth-friendly manner and that have laid the basis for a turnaround in our economic and employment situation.

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