LABOUR'S proposal to have a new 48% tax rate will not now be included in the party's general election manifesto – with the policy change being prompted by the government's introduction of the universal social charge in last December's budget.
Party sources have confirmed that the introduction of the 7% universal social charge had "changed the game" and left Labour with no choice but to shift away from its third tax rate proposal. The new universal charge, introduced by finance minister Brian Lenihan, replaced the traditional health and employment levies and the more recently introduced income levies, brought in by the government to try to plug the hole in the public finances.
Allied to the end of the PRSI ceiling – which had restricted PRSI to income under €75,000 but was scrapped in December's budget – the social charge had sharply increased the effective rate of tax for higher earners.
One of the central planks of Labour's pre-budget submission was a proposal to tax individuals earning €100,000 or more – and couples making €200,000 – at a new 48% rate. But party sources said that the new universal social charge and the PRSI changes had effectively "done the job we would have done".
They confirmed that the new rate would not now form part of the Labour general election manifesto. "The new social charge changes how you determine a person's effective tax rate. It simplifies the system and the combination of a person's tax rate, PRSI rate and the 7% social charge is a more important yardstick than a person's marginal rate. We have to move on," a source said.
However, Labour will be giving a lot of thought in the coming weeks to the potential to change how the universal social charge is applied so that it will affect the highest earners more, the sources said. Currently, it is applied across the board – albeit with a reduced rate for medical card holders included in the finance bill – and the party will look at how the rate might be applied differently to people on bigger incomes.