Seán Fleming (Laois-Offaly, Fianna Fail)
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168. To ask the Minister for Finance in view of developments in Portugal, if he has considered a general increase in PAYE to higher earners over a three year period which would have less deflationary impact on the general economy instead of specifically targeting public sector workers; and if he will make a statement on the matter. [18501/13]

Michael Noonan (Limerick City, Fine Gael)
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In relation to tax policy the position is that the Programme for Government states that as part of the Government's fiscal strategy we will maintain the current rates of income tax together with bands and credits and not increase the top marginal tax rates. I should point out that the latest OECD data indicates that Ireland has the most progressive tax system of the EU members of its organisation. A progressive taxation system ensures that the burden of taxation falls most heavily on those with a higher ability to pay.

In addition, the marginal tax rate, which is described as the tax rate that applies to the last euro of the base, is an important consideration in the formulation of tax policy. Marginal tax rates are important because they influence individual decisions to work more. The OECD in its working paper ‘Tax and Economic Growth' points to the “possibility that high top marginal rates will increase the average tax rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower rates resulting in a brain drain which may lower innovative activity and productivity” .

The top marginal tax rate for employees, including USC and PRSI, is now 52%. This has increased from 43.5% in 2008. The top marginal tax rate for self-assessed is now 55%. This has increased from 46.5% in 2008. It is estimated that in 2013, the top 5 per cent of income earners will pay 44 per cent of the total income tax yield, while it is estimated that those earning €50,000 or less, which represents 78 per cent of income earners, will pay 20 per cent of the total income tax yield. It is further estimated that in 2013, 841,000 individuals, which represents approximately 40 per cent of the income tax base, will be exempt from income tax altogether.

The issue of public service pay and other expenditure policy is primarily a matter for the Minister for Public Expenditure and Reform. However, in view of the Unions' non acceptance of the measures proposed by the Labour Relations Commission to achieve reductions in the public service pay bill, it will now be necessary for the Government to decide on and secure alternative measures that will deliver the savings to meet our expenditure targets.