The cutin income tax they promise could hide hike in nastiest tax of all
After the years of hardship we’ve had, Finance Minister Michael Noonan wants to give us a break. He said it’s a Government priority to reduce the income level at which workers pay the higher rate of income tax.
As he was speaking at the launch of the Fine Gael local election manifesto, this is a blatant political manoeuvre.
But there’s no harm in using tax cuts to soften the blows that the coalition has had to inflict on the electorate. The big question is: where is the money going to come from?
The Government is still spending way more than it’s taking in, an imbalance that must be reduced. And it won’t be helped by health expenditure that’s expected to come in hundreds of millions over-budget.
Reducing the level at which ordinary workers pay the top rate of tax does make sense. But not if this is a cynical political exercise, providing token relief that’s funded by screwing us in a different way.
Worryingly, this is exactly the way the Department of Finance seems to be thinking. RTÉ reports that it is looking into funding tax cuts by increasing the Universal Social Charge (USC). This would be like offering a sweet while hitting us with a hammer. While income tax grabs headlines, it’s not the worst form of taxation by a long way.
We may hit the top rate fairly early. But the impact is diluted by a system of tax credits that builds fairness into the system – or at least it used to before the USC came along. Widows, carers, pensioners, single parents and the blind and incapacitated have their tax burdens eased in this way.
The USC smashes through all of those credits and grabs money straight from the bottom line – your gross income. Someone earning €50,000 a year has to fork out a huge €2,819 in USC.
You have to pay up if you earn more than €10,036 and the top rate applies at €16,016 – half the level where the highest income tax rate kicks in. But you won’t hear Mr Noonan drawing attention to that, because he knows on which side his bread is buttered!
This is a sledgehammer tax. That’s exactly what it was designed to be – and why the Department of Finance mandarins love it.
The USC was introduced in the darkest days of the financial crisis as a smashand-grab raid that would rake in as much money as possible. That may have been necessary then. But this unfair tax should be the first to be reduced when things return to normal.
It certainly shouldn’t be increased to fund tax cuts in other areas in an insult to our intelligence.
The problem is that the State is now hooked. Last year it harvested just under €4bn in USC payments. That’s nearly half of the total receipts from PAYE (€9.5bn) and almost as much as corporation tax (€4.27bn).
It’s over 10 times what we pay in local property tax (€316m) and more than seven times the expected annual toll for water charges (€537m).
The USC doesn’t give us something tangible, such as water or our homes, to get worked up about. So nobody has taken to the streets to protest about it. Yet there’s more fairness and general good in taxing specific areas such as water and property.
Property tax is supposed to fund local council services and is targeted at people who use them. Water charges will help conserve a scarce resource. Combined, they wouldn’t take in a third of what we pay in USC.
Yet people have been up in arms about both of them. Meanwhile there has been hardly a whimper about USC, the biggest money-grabbing bully of them all.