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Irish Government Releases Pre-Budget Proposals

Mandy Robinson, Tax-news.com, London

13 November 2000


Last week the Irish Government published its 'Fairer All Round' document revealing its £1.2 million budget proposals. The Fine Gael party spokesman Mr Michael Noonan said that particular attention was paid to the introduction of a new middle rate of tax at 33 per cent and that the Government aimed to fulfil its commitment to reduce taxes: 'Fine Gael believes that tax reductions and improved public services in exchange for wage increases are still the best strategy for economic growth.'

The idea to focus tax relief largely upon the low and middle-income earners, according to Mr Noonan, would have less of an impact on inflation than tax relief for the more wealthy tax-payers.

Further budget proposals include the removal of the minimum wage from the tax net through tax credits and increasing tax exemptions especially for pensioners. Mr Noonan continued: 'Fine Gael believes that the removal of people on the minimum wage from the tax net should be the primary income tax objective. This should be achieved over two budgets. The use of tax credits ensures that all taxpayers, and not only those on the minimum wage, will benefit equally from this.'

There was also a proposal to cut the VAT rate by 2 per cent which would bring it down to 19 per cent. This would also lower the Consumer Price Index and would be likely to lead to consumers deciding to temporarily defer any expenditure plans. Mr Noonan said this was necessary if the government was to support Ireland in becoming a major European hub for e-commerce. To sell over the Internet the applicable VAT rate is that in the country of origin - currently Ireland's rate is 1.5 per cent above the EU average rate of 19.5 per cent.

As far as tax relief was concerned Mr Noonan explained: 'Fine Gael has already proposed that some of the income tax relief granted this year should be paid through the allocation to taxpayers of interest-bearing bonds, which would not be cashable for three years. Additional interest would be paid to persons who held these bonds for longer than three years.'

Minister of State for Finance Mr Martin Cullen reacted to the budget proposals with disappointment, he said: 'After three years of holding its breath, Fine Gael has produced what amount to shortsighted, short-term solutions which tinker at the edges of an issue that warrants far wider analysis and consideration than Fine Gael appears to realise.'

The budget proposals coincide with a report circulated at an EU finance ministers' meeting last week which revealed that the tax burden on the lower paid in Ireland is one of the lowest in the world. Minister for Finance Charles McCreevy enthused: 'we have done significantly more to address low pay tax issues by cutting average and marginal tax rates than nearly all [our] comparators.' He said that, compared to the UK, a single person earning £9,000 pa pays an average rate of 15 per cent whereas in Ireland the rate is significantly lower at 8 per cent.

In terms of tax issues this year has been an eventful one for Irish politics with a "pre-budget controversy" that has taken place in the months leading up to the December budget. In October, the Taoiseach, Mr Bertie Ahern, said that he would prefer to widen tax bands and allowances instead of reducing income tax rates but his opinion differs from that of the Tanaiste, Ms Mary Harney, who favours a significant income tax cuts approach.

The Irish Business and Employers Confederation (IBEC) has also had much to say about budget proposals in the past few weeks. It has adopted a firm stance in demanding the retention of the higher income tax band and this has led to a clash with Mary Harney who has made it clear that she would like to see the 44 per cent rate lowered by declaring: 'it does not keep bright young people in Ireland if you have those margins.'

In addition, Mr Ahern has insisted in asserting the Irish government's right, without being influenced by the EU, to remain responsible for the majority of its public expenditure (particularly in regard to low taxation issues) by stating in early November: 'In Ireland's case, low tax rates have played a crucial role in creating our economic success.' At his address to the Dublin South Central constituency office, Mr Ahern concluded his speech with a pledge to ensure that the government's next two budgets will bring about 'an historic and irreversible social change.'

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