State must boost capital spending by €1bn, says Ibec

Business lobby Ibec has called on the Government to boost capital expenditure next year by €1 billion and ease the income tax burden on higher earners.

In a pre-budget submission to the Department of Finance, the group said a major increase in capital spending was required to tackle infrastructure and investment deficits as the economy recovers.

Although the Government’s plan is to concentrate income tax cuts on the universal social charge, Ibec said steps were needed to cut the higher, marginal tax rate and cut the number of workers who pay it.

The group also called for overhaul of childcare, with public funding redirected to services from direct child benefit payments to parents.

It wants a reform of planning rules to increase the supply of new homes, in Dublin particularly.

Wake-up call

Saying recent budget moves by the re-elected Conservative government in Britain should be a “wake-up call”, Ibec chief Danny McCoy said

Ireland

risked being outmanoeuvred by competing countries if plans were not made now for the next phase of economic development.

“Decisive moves to improve the UK’s attractiveness to business in George Osborne’s latest budget demand an early Irish response,” Mr McCoy said.

“They have embarked on a radical reform of the tax code to attract the next phase of inward investment, champion entrepreneurship and boost job creation. We need to do the same.”

Expansionary package

Ibec said that the allocation of a further €1 billion for capital expenditure would bring the value of the expansionary package foreseen in the October budget to €2.5 billion.

Such expenditure by the State would be in addition to €1.5 billion in private-sector capital expenditure.

While Minister for Finance Michael Noonan has been insisting he will go no further than a fiscal range of €1.2 billion to €1.5 billion set out in the spring statement, Ibec said that the Government should seek a flexible application of European budgetary rules by the Brussels authorities to facilitate investment.

The current application of the EU rules had potential to undermine rather than support recovery, the submission said.

“They fail to adequately reflect recent positive trends in the economy and, as a result, significantly underestimate Ireland’s potential growth rate over the coming years.

“This has resulted in overly conservative expenditure limits, which risk severely restricting much-needed long-term investment in capital projects and innovation.”

The group said the Government should cut the marginal income rate by one percentage point to 50 per cent, at a cost of €158 million, and commit to getting the rate below 50 per cent by 2017.

Ibec also called for a €1,500 increase to the threshold at which workers hit the higher income tax rate, and a €100 increase in personal tax credits for all workers – with a combined cost of €338 million.

Mr McCoy said Irish workers earning less than €34,000 paid a much higher marginal rate than in Britain, where the 40 per cent marginal tax rate is applied on earnings above €61,000.

Penal USC

The group also said the Government should scrap measures last year which retained a higher universal social charge rate on people earning more than €70,000.

Describing this as a “third”, higher rate of tax, the group said that it was causing companies problems in attracting highly skilled staff to work in Ireland.

Ibec said the net cost of childcare was about 45 per cent of the average wage in Ireland, in contrast to an OECD average of 18 per cent.

The State currently spends “only €260 million on childcare services, in contrast to €1.9 billion on child benefit. We need to move to a system where there is a 50/50 split between childcare provision and direct payments.”