Labour Party insists tax cuts and spending increases are affordable

The Labour Party has insisted it can afford further increases in public spending, such as additional rises in child benefit, even as it promises tax cuts for higher earners.

In its general election manifesto, the party will commit itself to split all available future resources between spending increases and tax cuts on a three-to-one basis in favour of spending.

Tánaiste Joan Burton confirmed the previously flagged position that the party will abolish the universal social charge for everyone on a salary of up to €70,000.

However, Ms Burton also said people earning between €70,000 and €120,000 will still benefit from some level of tax cut, although the gains will be capped. People earning above €120,000 will continue to pay the same level of tax.

Fine Gael sources said tax rates on higher earnings were already making it difficult to attract foreign direct investment and the party will reduce all tax rates to a maximum of 50 per cent.

Labour sources said its commitment can be realised. The total costs of the party’s tax plan will be €2.5 billion out of a total €10 billion in available resources over the next five years, the so-called fiscal space.

Tax plan “

There is about €10 billion in fiscal space available to the next government,” said one source.

“That’s how much more there will be cumulatively for tax cuts or spending increases by 2021.

“Our tax plan will cost €2.5 billion, meaning there will be €7.5 billion left for increased spending on services, pensions and child benefit.”

Ms Burton has increased child benefit by €5 in each of the last two budgets, bringing the total monthly payment per child to €140.