Noonan promises couched in a very big ‘if’

Analysis: Minister for Finance has his eye on tax, though he has little wiggle room

Minister for Finance Michael Noonan pledged to ease the personal tax burden, but  couched his pledge with a big “if”. Photograph:  Colin Keegan, Collins Dublin

Minister for Finance Michael Noonan pledged to ease the personal tax burden, but couched his pledge with a big “if”. Photograph: Colin Keegan, Collins Dublin

Sat, May 3, 2014, 01:00

One of the puzzling aspects of Ireland’s recovery has been the absence of any meaningful surge in income tax given the positive employment data.

There are 70,000 more people at work than 18 months ago, presumably all paying tax, but little to show for it in Government coffers.

Perhaps the department’s latest set of numbers, which show income tax running 2 per cent ahead of profile, provide the first, modest, reflection of this jobs’ growth.

But things are bouncing about wildly in Ireland’s economy and it would be foolhardy to document a trend on the basis of one or two months’ figures.

The department’s projections are very cautious. So being ahead of profile is not exactly cause for celebration.

Nonetheless, after getting a sneak preview of the figures on Thursday, Minister for Finance Michael Noonan promptly pledged to ease the tax burden, principally by widening the tax bands.

Bear in mind, he was on the election trail. He also couched his pledge with a big Kipling-esque “if” – if resources permit, which means he promised something that he may not be able to deliver.

On the basis of its recent Stability Pact update, his department reckons he will have little wriggle room if troika-agreed targets are to be maintained.

Tax cuts
Nonetheless, the figures, showing the Government has €222 million more than it thought it would have at this stage, will increase the clamour for tax cuts.

If jobs’ growth is translating into stronger income tax receipts, it is not doing much for spending.This is the most worrying aspect of the figures. VAT generated €3.65 billion in the first four months of this year. This was €177 million or 5.1 per cent up on last year, but €51 million or 1.4 per cent lower than forecast.

Suggestions that more people at work would quickly feed into better retail sales have simply not materialised.

After five years of falling incomes and ballooning debt, the Irish consumer is more cautious.

“It may be that people are not spending as much as was expected, in which case they’re saving more, and they will have more to spend in the future,” Prof John FitzGerald of the Economic and Social Research Institute said yesterday.

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