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Ireland Hasn't Budgeted For Future Tax Cuts

by Jason Gorringe,, London

25 November 2014

The Irish Fiscal Advisory Council has warned that the Government's Budget 2015 tax revenue forecasts do not take into account the possibility of future tax changes, in spite of plans to cut income tax again in 2016.

The fiscal watchdog's November 2014 Fiscal Assessment Report states that "published tax revenue projections assume no change in policy in the medium term." It points out that "revenues will likely be impacted by announcements regarding an easing of the income tax burden in future Budgets."

Last month, Finance Minister Michael Noonan unveiled plans for lowering the marginal tax rate from 52 percent to 51 percent. His 2015 Budget includes a reduction in the top rate of income tax from 41 percent to 40 percent, a EUR1,000 (USD1,240) increase in the standard 20 percent income tax rate band to EUR33,800 for single individuals, and a restructuring of the Universal Social Charge (USC).

Prime Minister Enda Kenny has since pledged that Budget 2016 will cut the marginal rate faced by middle-income families to 50 percent. He has also said that his Government, if re-elected next year, would deliver a further rate reduction in Budget 2017.

According to the Fiscal Advisory Council, "the assumption for revenue for 2016 onwards is that no tax measures are introduced after 2015."

Budget 2015 included expansionary measures of EUR1bn, or 0.5 percent of gross domestic product (GDP), compared with the EUR2bn consolidation previously planned. The expansionary measures include EUR400m in tax cuts and a EUR600m increase to the 2014 expenditure ceiling set in Budget 2014. Despite a smaller fiscal effort in Budget 2015, the deficit is projected to fall to 2.7 percent of GDP.

At end-October, taxes and pay-related-social-insurance (PRSI) together were EUR1.3bn ahead of target, driven by an 8.2 percent year-on-year increase in value-added tax (VAT), and strong performances in excise duty, corporation tax, income tax, and PRSI. The Fiscal Advisory Council said that the majority of this over-performance "appears to be based on an underlying improvement in revenues rather than one-off or temporary factors."

TAGS: individuals | Finance | Budgets | tax | value added tax (VAT) | Ireland | government committee | gross domestic product (GDP) | corporation tax | excise duty | ministry of finance | tax authority | tax rates | revenue statistics | tax reform | individual income tax

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