Income tax cuts to stimulate jobs on cards, says Noonan
Minister tells OECD the ‘priority will be to widen the average rate band of income tax’
Minister for Finance Michael Noonan greets his Finnish counterpart Jutta Urpilainen (left) during a European Union finance ministers meeting in Brussels last night. Photograph: Francois Lenoir/Reuters.
European Central Bank president Mario Draghi and European Stability Mechanism managing director Klaus Regling (right) attend an eurozone finance ministers meeting in Brussels on February 17th, 2014. Photograph: Francois Lenoir/Reuters
“As soon as we have resources, our first priority will be to widen the average rate band of income tax,” Mr Noonan said yesterday at an OECD conference in Brussels.
Asked if Ireland was guilty of “complacency” for considering tax cuts soon after the bailout exit, he said the higher tax rate kicked in at the “very low level” of €32,800 in Ireland.
“That’s damaging job creation. As a labour market initiative – to make work worthwhile – we are saying that as soon as we have resources, our first priority will be to widen the average rate band of income tax.
“It’s not a promise to endear ourselves to the electorate, it’s another instrument of labour market policy,” he said, adding it would allow people to earn more, and take on extra work before hitting the higher rate.
While the Minister declined to be drawn on what the new threshold would be, he hinted that a growth rate of over 2 per cent would strengthen the case for income tax cuts. “If various independent forecasters are correct, and the economy is growing faster than the 2 per cent [forecast], that should give taxation buoyancy,” he said.
Ireland had never been afraid to cut taxes, “even during the most difficult times”, he said. In particular, he highlighted the move to cut VAT on tourism, and the decision to cut the stamp duty on the transfer of farmland as ways of stimulating both sectors of the economy.
Finance ministers were locked in discussions last night about the structure of the Single Resolution Mechanism, a key pillar of “banking union”, which will deal with the resolution and restructuring of troubled banks, ahead of a meeting of all 28 finance ministers today. While member states agreed on a template for the €55 billion fund in December, it must now be agreed with the European Parliament, which has raised objections over the pace of “mutualisation” of the fund, and where its decision-making powers will lie.
Speaking ahead of the meeting, Mr Noonan said he expected a final agreement in time for the European Council meeting in March.
“We don’t want it interrupted by the European elections,” he said. He added that Ireland also favoured a faster move towards a fully shared fund, in a time period of five rather than 10 years.
With the European Central Bank preparing to take over supervisory responsibilities of European banks, ECB president Mario Draghi has repeatedly stressed the need for a coherent euro zone response to deal with troubled banks, particularly if stress tests later this year reveal problems.
Yesterday, chief executive of the European Financial Stability Facility Klaus Regling told a German newspaper he believed the banks in so-called peripheral countries such as Ireland, Portugal, Greece, Spain and Cyprus are “in good shape”: “I expect that there won’t be any big surprises in Spain, Portugal and Cyprus. The same is the case for Greece and Ireland . . . The banks in the programme countries are in quite good shape.”