Super tax and 2% tax hike planned for mini-budget

Shane Coleman Political Editor

* Lower paid to be brought into the tax net* €1bn in extra levies for nation's taxpayers

The government wants to increase the top and bottom rates of tax by two percentage points and introduce a new super tax for high earners in next month's mini-budget.

Workers will be hit by well over €1bn in extra tax levies in the mini-budget with lower paid workers, previously exempt from tax, certain to be brought into the net.

However, the government faces huge administrative difficulties in raising tax rates this far into a new tax year. Unless some way can be found, the government is instead likely to temporarily, but sharply, increase the existing income and health levies. These increases would then be replaced by more conventional tax rate rises in December's budget.

Close consideration will be given to lowering or even scrapping the threshold at which workers have to pay the two levies. There is a consensus that the current system whereby 40% of income earners pay no tax will have to end as it is unsustainable, however politically unpalatable it might be.

While the government has yet to finalise what exact measures will be in the mini-budget, it is accepted that the 'old reliables' of cigarettes, alcohol and petrol will be be hit hard.

Tax increases are expected to account for around €3bn of the €4.5bn in extra revenue the government needs to raise for the current year, as ministers feel it will be extremely difficult to come up with cost savings beyond €1bn to €1.5bn.

The €3bn a year lost to the exchequer through tax relief on pensions is likely to come under scrutiny. The fear within government is that scrapping this relief would destroy the entire private sector pension system, leaving everyone to rely on a state pension. However, consideration will be given to limiting tax relief to the standard rate of taxation with senior sources describing this as a "strong possibility".

The limited time frame between now and 2 April means that the government won't introduce a property tax or taxation of child benefit. However, the intention to introduce a property tax later this year could well be flagged. And further cuts in the early childcare supplement are described as "probable, rather than possible".

The introduction of carbon taxes, long demanded by the Greens, could also happen in the mini-budget.

Even with deflation, cuts in the rate of social welfare are still seen as unlikely, though they are not yet ruled out because of the huge savings that could be generated by a cut of 1% or 2% in social welfare rates. One possibility could be a scrapping of the traditional Christmas bonus payment.

"There is going to be pain, a lot of pain. Let's hope there's some gain. There is simply no choice. There is no easy way out of this," said one senior government figure.

March 8, 2009

Comments

#1 c carroll commented, on March 8, 2009 at 9:12 p.m.:

we are spending e3500 per head of population more on the puplic sector than any other eu country but this spineless govt would rather cripple people with tax rather than adress this waste.

#2 Rory commented, on March 8, 2009 at 10:41 p.m.:

Can anyone tell me why I should save anything at all for a pension if relief is only granted at 20%. Saving to a pension is not avoiding tax, only deferring it. When it is finally drawn down, it will be taxed at 41% (probably more). So by the time I draw my pension, my income will have been taxed by 60%. So why should I save?
The Government would be better either reducing taxes on pension income (in future years - difficult to guarantee) or borrow from pension funds at a reasonable rate of interest (perhaps making some percentage investment in special bonds mandatory).

#3 Andrew commented, on March 9, 2009 at 1:51 a.m.:

Carbon Taxes are being raised to help the environment?

Yeah right...

#4 Patrick commented, on March 9, 2009 at 7:55 a.m.:

Rory, You have not got a clue about tax. If you reckon that at the moment you are only being taxed at 20%(ie only getting tax relief at 20% for your pension contributions) then how do you reckon that you will have a pension taxable at 40% when you retire, are you expecting your pension to make astounding returns?

#5 Niall Lombard commented, on March 9, 2009 at 8:26 a.m.:

The article makes no mention of the removal of tax shelters (eg section 23's ,film making etc )or dealing with the alleged tax exiles.Surely such measures as well as raising revenue would introduce more equity into the system and make the other measures more acceptable to "ordinary" taxpayers.

#6 Eoin Public Servant commented, on March 10, 2009 at 8:08 p.m.:

C Carroll needs to examine the facts rather than fantasy about public service spending in Ireland. We have lower per capita spending on the public service than most other countries in the EU. The health service is perfect example of even when we meet the EU average we get it wrong. THIS GOVERNMENT has focussed on inserting layers and layers of management rather than on providing real front of house service delivery which is a priority in the real economies like say France. That why you get less for your money and not any huge inefficiency in the services. Public Servants are on the whole dedicated to their public service role which is why they accepted such poor pay compared to private sector compartators throughout the boom. You disagree?? Most people wouldnt spit on a public service job a few years ago because of poor pay. No one would apply - Hence the limited 8%-12% reallignment through benchmarking, just to get people in to apply. Pick another target C Carroll or at least get your facts straight. The public service are not the cause of this crisis and you certainly wont solve it by cutting their incomes and leaving most of them with unstable mortgages - which incidentally is where the current policy is leading. Some public servants will be down $400-500 a month post budget and those will mortgages will pay them how?? More bad debt - good idea huh. How about emmigration C Carroll you'd be loved in America - of course dont get sick there.

#7 Myles Rath commented, on March 10, 2009 at 9:38 p.m.:

I strongly contend that, among other desirable changes, we should revert back to the income tax rates similar to those that were in operation during the first phase of the Celtic Tiger era from 1995 to 2000, when we had very impressive growth in exports and in the economy as a whole. The top rate of tax was 48% for three of these years and only dropped to 44% in 2000. The low rate was 27% for the first two years and dropped to 26% in year 3. The low rate was 24% in the first two of Charlie McCreevy’s budgets and he only reduced it to 22% in 2000. Economic growth dropped following these and subsequent tax cuts - notwithstanding the wholly artificial property bubble McCreevy’s other policies created.
Since then we have had perpetuated what JK Galbraith called an innocent fraud about the importance of low income tax rates for economic growth. People have simply been led to believe that low taxes were critical for growth because it suited their interests even though the evidence in support was very weak or non-existent.
Substantial rises in both the high and the low rates of income tax can therefore be introduced in the period ahead without fear of damaging economic growth when global conditions improve. The income levies would, of course, also have to be taken into account. The government needs to decide where it wants the income tax rates and levies to end up after the next two or three (mini)budgets and plan how to get there.
The government has created a very severe, if somewhat unjustified, sense of unfairness with the public service pension levy because many of the high income and high net worth individuals seemed to get away scot-free. Broad-based increases in income tax rates and/or income levies for all, combined with a well-designed pension levy for the public service, phased in over 2 or 3 years, would have been politically much more astute. It may not be too late for such a change even at this stage.
In any event, at each step of the way it is important that all sectors of society are perceived as sharing the pain fairly. Reducing the entry point for income tax, raising the low and high rates of income tax and altering or eliminating a range of tax exemption schemes should all be planned so as to meet this requirement for fairness. It is a bit of a challenge but it should not be beyond the wit of a reasonably competent Minister for Finance, even if he has to depend on officials whose competence we have reason to doubt at this time.

#8 anthony commented, on March 11, 2009 at 5:52 a.m.:

Carroll clearly states that Gov should clear out the waste in the public service. Even a child could read and understand what he wrote.Yet Eoin attacks him and yet admits that there are layers and layers of management instead of front line people and then also admits that people get less for their money.As for mortgages well no one forsed anyone to take out a motrgage, do you want the public to make car payments for your buddies also well do you Eoin. If you read any news on the U.S lately you would also know that every man woman and child will have health care as soon as the bill gets passed but for now there is a program called Medicare and Medicade to help the less well off.O bye the way don't get sick in Ireland you'll be two years waiting for a well run public service trolly if you don't die in the meantime.When, not if, the I.M.F take over finance from the Gov, the Public Service and yere pensions will be the first to be culled anyway. Carroll if you come to the States will you turn out the lights before you leave. Thank You

#9 dj horgan commented, on March 12, 2009 at 7:35 a.m.:

remove all current goverment, get a new goverment set up thats not corrupt , influnced by the rich , tax the big earners 100000 + @ 50 %
tax the off shore oil drilling companies, tighten up on non national,s we have should be like austraila , you need a visa to get in to ireland , and you must already have enough funds in your own bank account , a non national cannot get social welfare for 1st 12 months , get real people we are and have been too soft and now we are paying the price , what have the tribunals cost the country , the goverment is supposed to be repesenting the people , not abusing them

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