Wednesday, 12 July 2023
Nithe i dtosach suíonna - Commencement Matters
Senator Seán Kyne::I thank the Cathaoirleach’s office for choosing this Commencement matter this morning. I welcome the Minister of State, Deputy Peter Burke, to the Chamber. I do not have to tell the Minister of State of the statistics showing that 2.61 million people are now at work, more than 100,000 jobs were created in the past 12 months and the unemployment rate stands at 3.8%, which is the lowest ever. The State’s employment agencies such as IDA Ireland, Enterprise Ireland and Údarás na hÉireann support companies and businesses that employ some 528,000 people. Throughout the country the SME sector, small and local businesses, provide work and opportunities for hundred of thousands of people. With full employment, there are record levels of revenue from income tax and corporation tax, record levels of inward investment and a growing economy despite the international challenges. None of this happens by accident. It happened because the right policies are being implemented and we must never take any of this success for granted.
In the context of a growing economy and increased revenues, it is possible and reasonable to cut taxes while also being able to increase spending in a targeted and responsible way. The programme for Government commits to index-linking tax credits and tax bands so as to prevent an increase in the real burden of income tax. One of the policies of my party, which I wholeheartedly support, is rewarding work and enterprise. The best way of helping people to manage the cost of living is to cut their tax bill. Fine Gael and the Government have pursued this policy in cutting tax and USC over the past decade. However, people on very modest incomes still pay a high rate of tax far too soon. The argument against cutting tax is that it will fuel inflation. However, inflation has halved in the past year and is expected to halve again in 2024. If we do not cut taxes, inflation by its very nature will actually increase the burden of taxes on workers. That goes against the commitment in the programme for Government.
The summer economic statement forecasts an overall budget package of €6.4 billion. Of this, €5.2 billion will be additional spending and €1.1 billion will be for tax measures. Will it be possible to achieve the programme for Government commitment and fully index-link tax credits and bands within these allocations? That is an important point in regard to the commitments in the programme for Government on tax cuts and changing tax credits. We have seen in the past year the entry point increased to €40,000 for the higher rate of income tax. We want to see that progressed over the next number of years to €50,000 before people would pay the higher rate of tax.
It is important to recognise that without index linking, eventually everybody would end up at a higher rate of tax as wages grow. A tax cut is a misnomer to a degree. It is about indexing tax rates to wage growth. That is important. It is important to acknowledge that people in this country are working very hard. In particular, they have had great difficulties for the past couple of years with the cost of living, including the cost of energy, the impact of the war in Ukraine and high rates of inflation, which we have not experienced for some time. Thankfully, the rates are dropping. They were down to 4.8% in June and, hopefully, they will continue to reduce as projected. It is important that the tax code and tax credits keep pace and reward people for the work they are doing. The majority of people are working hard and have no issue supporting those in need through social welfare and the pensioners who built this country. They should be rewarded but the workers also need help. They need assistance. They need the continuation of tax cuts and index linking of tax credits. I hope the budget will continue to reward workers for their work and, to use a cliché, for getting up early in the morning and putting in the hard graft to provide the taxes that support all and sundry.
I thank the Senator for raising this very important matter. He quoted from the programme for Government, Our Shared Future, with regard to the specific commitments in this area. It states:
From Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be index linked to earnings. This will be done to prevent an increase in the real burden of income tax, to prevent more low income workers being taken into the tax net because of no changes to the tax system and to ensure there is no increase in the number of people having to pay higher income tax and USC rates.
The Senator quite rightly pointed that out. Significant progress has been made in achieving this commitment over the past few budgets. Budget 2022 included an income tax package with a cost of more than €500 million. The single standard rate cut-off income tax band was increased by €1,500 from €35,300 to €36,800, a 4.3% increase, with commensurate increases for persons who are married or in civil partnerships. In addition, the primary tax credits - personal, employee and earned income tax credits - were also increased by €50 from €1,650 to €1,700, which is just over a 3% increase.
Budget 2023 also included a substantial personal income tax package amounting to €1.13 billion. Again, the single standard rate income tax band was increased, on this occasion by €3,200 from €36,800 to €40,000, an 8.7% increase, with commensurate increases for persons who are married or in civil partnerships. In addition, the primary tax credits - personal, employee and earned income tax credits - were also increased by €75 from €1,700 to €1,775, which is just over 4.4% of an increase. These tax changes effectively indexed the income tax standard rate bands and main personal tax credits within the fiscal resources available. Furthermore, in budget 2023, the home carer tax credit was also increased by €100 from €1,600 to €1,700 a 6.3% increase.
On USC, in both budget 2022 and budget 2023, the ceiling for the 2% rate of USC was increased in line with increases in the national minimum wage, which is €11.50 per hour in 2023, to ensure that a full-time adult worker on the national minimum wage would remain outside the top rates of USC. The temporary USC concession for full medical card holders earning less than €60,000 was also extended in both budgets such that it remains in place until end December 2023.
Last week, it was announced in the summer economic statement that a tax package of €1.1 billion is being provided for in budget 2024, with measures that shield workers from higher taxation arising due to inflation being prioritised. With this in mind, the Minister for Finance will be developing a package, including policies relating to taxation, over the coming months.
I thank the Minister of State for the comprehensive response on what we have done in the past and in budget 2023. It is important that the programme for Government commitment to a tax package that will benefit workers in this country and the summer economic statement are followed through on. It is essential to put money back in people's pockets to help them deal with the rising prices of goods and services. Tax cuts give people choice as to how to spend their own money in a time of tight personal finances and they ensure that people's real tax bills do not increase due to inflation. The Taoiseach has stated that we will use the corporation tax receipts for additional capital investment, debt reduction and a future fund. That is important but it is also important that workers see the benefit of their work and of the improved finances in the country. They have had a long number of years of difficulties, particularly for the past few years due to inflationary pressures, so they need relief.
The Senator made very valid points about how the budget should be framed. It is critical for workers who are doing additional hours or overtime that they do not lose money in their net pay because of increasing taxation rates and going into a different bracket in terms of the standard rate cut-off points. The Government has to, and will, prioritise in budget 2024 people who are working and middle-income earners to ensure they are getting tax back and are protected from that bracket creep through the increase in inflation. That is very important because they are the engine room of the economy. We are all very aware in these Houses that we need a strong economy and we need workers in that engine room to run our public services, protect the most vulnerable and provide for all of those key mechanisms in society. The economy is central to doing that. The Government has been very strong on that. As the Senator quite rightly pointed out regarding the corporation tax surplus, it is not about being risky. We are protecting it for future generations so we can deploy it in a countercyclical manner to ensure that at times when public investment is weak and private investment is under pressure, we have that money to put into future generations.