Pearse Doherty (Donegal South West, Sinn Fein)
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2. To ask the Minister for Finance the way he will lift the tax burden of lower and middle income families in such a way that the most vulnerable are given a break from the tax burden. [8572/14]

Pearse Doherty (Donegal South West, Sinn Fein)
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In this question I ask how the Minister for Finance proposes to lift the tax burden on lower and middle income families to ensure the most vulnerable in society are given a break from it. Usually, I would not table these questions this early in the year or this far out from a budget, but the Minister for Finance, the Taoiseach and other Ministers have gone on many media platforms, both domestically and internationally, to say they intend to widen or increase the threshold for entry to the higher rate of tax. I ask the Minister what consideration he has given to the impact of this proposal on the most vulnerable in society.

Michael Noonan (Limerick City, Fine Gael)
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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.

Additional information not given on the floor of the House.

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.

Pearse Doherty (Donegal South West, Sinn Fein)
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I appreciate what the Minister is saying. Obviously, the Government is still committed to an austerity budget next year that will take €2 billion out of the economy. Perhaps it is the fact that we are facing into the local and European elections in a couple of months but somewhere in the middle of that, the Minister has found it within himself to announce that he wants to increase the threshold. Sinn Féin acknowledges that the threshold here is low compared to other countries but one must also look at the effective tax rate that is paid here compared to other countries for a person earning €40,000 or €50,000 where one sees a different scale.

The Minister will have seen from our alternative budget that Sinn Féin is very clear that we should have a tax reduction for low and middle-income families. We believe the best way to do this is through abolishing the household charge and giving people, on average, €278 back. The Minister will be well aware that increasing the threshold by €1,000 would cost the State €150 million, that 15% of the benefit of that would go to those earning above €100,000 and that 1.1 million taxpayers will get no benefit from increasing the threshold. Why do the Minister and his colleagues in the Labour Party believe that this is the best and most effective way to lift the burden from vulnerable low and middle-income families?

Michael Noonan (Limerick City, Fine Gael)
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I cannot get into the details of a budget that will not occur until next October because I am only thinking about initial concepts for it. It is not fruitful to have some kind of detailed debate here. What I was pointing out was that any tax changes that will take place in any budget I introduce will be driven by considerations of growing the economy and employment. I also pointed out that there were tax reductions in each of the past three budgets but, of course, they had to be paid for by increasing taxes elsewhere. For example, two months after coming into Government, I took the VAT on the hospitality industry from 13.5% down to 9%. That was done to restore the tourist industry and create jobs but, of course, we had to raise taxes elsewhere to pay for it. It was still a successful initiative. In this year's budget, I abolished the travel tax and immediately got a response from Ryanair which said it would bring 1 million extra tourists into the country. In our first Finance Bill, we reduced the stamp duty on farmland so that as we go into the quota-free days post 2015, the potential is there to transfer land cheaply to the next generation of farmers. I will follow the same course here. I am pointing out that the portion of the income tax code that is most adverse to job creation is the fact that one goes on to the higher rate of tax at €32,800. I am saying that if there are resources, that is the first piece I would like to do in alleviating the burden of income tax but it is only the initial phase of a debate that will keep running until next October.

Pearse Doherty (Donegal South West, Sinn Fein)
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I am trying to feed into that debate in a productive way. I ask the Minister to acknowledge to the House that by increasing the standard threshold, 1.3 million taxpayers in this State will not benefit by one penny and many others may not benefit because of the way it is calculated. One could have married couples treated as a single unit. We know that 1.3 million taxpayers would not benefit whatsoever, that the cost of increasing the threshold by €1,000 is about €150 million and that 15% of that benefit would go to individuals who earn above €100,000. Can the Minister acknowledge this because this debate has been dressed up by others to make it seem as though this is about giving taxpayers something back? I acknowledge the Minister has not dressed it up in his contribution here today. Can the Minister acknowledge that if he was to increase the standard threshold, the vast majority of taxpayers who have taxable income would not benefit at all and a significant portion of this benefit would go to highest earners? That is the reason I believe that if something is to be given back, let us ensure that the people who are hanging on by their fingernails - those who do not have taxable income or those whose taxable income is moderate - are given something back. There are other ways to give something back including abolishing the property tax and exempting minimum income earners from the universal social charge. There are many more in respect of which I, on behalf of Sinn Féin, would like to engage with the Minister.

Michael Noonan (Limerick City, Fine Gael)
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I acknowledge that there are differences of opinion about this. The next budget at a headline level must have an adjustment of €2 billion so it is not that we are flush with money to give away. What I am trying to do is put the debate into a space where we are not trying to endear ourselves to the electorate or do pre-election things. What I am saying is that we will be consistent with the policy I followed. I acknowledge that people do not fully agree with the policy but the policy is that if we are making tax changes, we will do so in a way that has a labour market effect. In other words, we make it easier to create jobs. Of course, the Deputy is right. It is quite clear that out of people who work, 856,000 people do not pay income tax at all. This will have no effect on them because they do not pay any income tax. Of course, it will have no effect on people with an income below €32,800 because it is only at that figure that one goes on to the higher rate of tax. There are other things in the tax code that we can debate and I am sure we will come back to this on several occasions. I was simply identifying for the purpose of guidance where I see a priority but I am open to any other suggestions depending on resources.