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

I note the release of a number of publications by the ESRI as part of its annual "Budget Perspectives" series, which is a welcome part of the information base leading up to the budget each year. I assume the paper to which the Deputy is referring is "Exploring Tax and Welfare Options". The paper indicates that a reduction in the 8% rate of USC or a cut in the top income tax rate would result in the top decile of households having the largest gains in equalised disposable income. This is unsurprising as the households in lower deciles pay little or no USC or income tax at these marginal rates.

The ESRI points out that the estimates of the distributional impact of tax and welfare changes they provide are "static" impacts based on the technical assumption that behaviour does not change. Thus, the estimates only consider part of the benefit to those currently working and do not account for the effect that lower labour taxes can have in incentivising participation in the labour market and increasing employment. Increasing employment has been a key plank of this Government's policy.

As I have said on many occasions, a fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high and that I would seek to reduce it as soon as it was prudent to do so. Ireland already has one of the more progressive income tax systems in the developed world.As a result of the changes I introduced in budget 2015, all those who paid income tax or USC in 2014 will see a reduction in their tax bill for 2015, where incomes are equal.  However, to preserve the progressivity of the income tax system, the budget measures were specifically designed to ensure that those with very high incomes would only benefit to the same extent as those with more modest incomes. This was achieved by the introduction of the 8% USC rate for income over €70,044, confining the benefit of the reduction in the marginal rate of tax from 41% to 40% to earnings below that ceiling only. The maximum benefit from the budget 2015 package of tax measures was, therefore, limited to approximately €14 per week for any individual taxpayer.

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The reality is that, because of the highly progressive nature of the Irish tax system, those on lower incomes pay very low levels of tax, particularly when compared to their counterparts in Europe. It should also be noted that, as a result of increases to the entry point to the USC introduced by this Government in budget 2012 and budget 2015, raising the entry point from €4,004 to €12,012 per annum, it is estimated that approximately 417,000 individuals have been exempted from the charge altogether. This means that 28% of all income earners are not paying any universal social charge at all. Furthermore, I also reduced the two lower rates at which USC is charged and extended the threshold before the 7% rate becomes chargeable up to €17,576 per annum.

The changes announced in budget 2015 were steps in a process targeting low and middle income earners, which seeks to ensure that we continue to have a tax system that is progressive and which rewards employment. I intend to continue to reduce the tax burden on low and middle income earners in this manner, subject to having the required fiscal space.

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