Noonan’s tax cut idea would be no help to those who need help most

Seeing that they didn’t get around to giving us any Christmas presents this year, it was nice of Ministers Noonan and Burton to promise us some goodies would be on the way by 2016: tax cuts no less.

But that’s a long way off so I’m sure that I won’t spoil your hopes too much by suggesting that what’s promised would be grossly unfair, providing no benefit at all to those paying tax only at the standard rate.

It is a long way away but the proposal provides a worrying insight into the thinking that will go into the Government’s Strategy for Growth.

It seems that, if there are to be tax cuts, they will be targeted at the middle and upper income groups.

On top of that there is the emphasis in the strategy document on reforming the social welfare system to ensure that the unemployed have a strong incentive to return to work.

Although there are some anomalies that make it, in some cases, more financial advantageous to stay on welfare than actually take a job, there is no evidence that the number of people faced with this dilemma is large.

Neither is there any evidence that employers can’t find workers. There simply aren’t enough jobs available.

But reading between the lines, it’s likely that the Government is proposing, in addition to its job activation programmes, some cutback in social welfare benefits.

As suggested in this column a few weeks ago, it is certainly planning to subsidise low-paid jobs by encouraging a greater takeup of the family income supplement. This is a payment made to families on low pay. Many people miss out on it but now employers are to be given a role in promoting it.

So employers negotiating wages with a new worker is going to be encouraged by Joan Burton’s Department of Social Protection to point out that workers who accept a low wage will be able to claim a top-up from the State. Family income supplement has its uses but the proposal in the Government’s strategy document seems designed to promote a low-wage economy, at least for many. And family income supplement creates a poverty trap in so far as the wage top-up decreases as wages go up. So there is no great incentive for the worker to look for higher wages and no pressure on the employer to offer them.

It may be a small enough point in the context of the overall strategy, the detail of which will not be revealed until the New Year. But it suggests that the Government is intending to continue with the right-wing ideology that has been driving the austerity programme of recent years.

That’s reflected in the tax proposal too. The promise is to raise the level at which workers move into the higher tax bracket. That’s easily achieved. The thresholds are simply raised. At present a single worker can have a taxable income of at least €32,800 before paying income tax at the top rate of 41%.

Raise that by €1,000 and the saving is €210 a year. Instead of paying tax at 41% on that €1,000, the liability is only at 20%.

That change confers no benefit whatsoever on those already beneath the threshold and only paying tax at 20%. But everyone paying tax at 41% gets the same benefit whether on €40,000 or €400,000.

Far better to ensure that tax cuts only help those at the lower end of the income scale. They are more likely to spend the extra money in the domestic market.

But should we have tax cuts at all rather than increased spending on State services? That’s the debate that really needs to get underway.