Budget 2016: Coalition is examining bigger tax-cuts

Government officials are looking at the scope for a bigger tax-cuts package than the agreed €750 million limit through a series of revenue-raising measures.

An increase in tax on tobacco and diesel has been mentioned, as well as an increase in the €150 million annual bank levy.

There is no agreement on any of these matters but discussions are set to intensify next week ahead of Budget 2016 on October 13th.

Although the Department of Finance is not in favour of any move to bring tax cuts beyond the €750 million agreed by the inner Cabinet, sources elsewhere in the Coalition said the totality of measures now in play could well exceed that sum by a considerable margin.

Given the Government’s decision to cap tax concessions at €750 million, it is accepted at high levels in each of the Coalition parties that any excess would have to be funded by new revenue from increases in other taxes.

The Government is very reluctant to go down that road, although sources briefed on the discussions said efforts were quietly under way to scope out potential to raise revenue in a small number of tax brackets.

Such a move would not expand the fiscal space set aside for the budget, but it would be sensitive politically after the push to halt austerity policies.

The advancing debate on the tax package follows ambitious spending demands from Ministers which vastly outstrip the amount the Government has set aside for increased expenditure.

PRSI burden

Such demands were spurned by the

Economic Management Council

, the Cabinet subcommittee at which Taoiseach Enda Kenny sets policy with Tánaiste Joan Burton and ministers

Michael Noonan

and

Brendan Howlin

.

At issue first are cuts to Universal Social Charge rates and increases to the income entry points at which USC rates apply.

However, the Government is also considering measures to ease the PRSI burden both for workers who benefit from an anticipated increase in the minimum wage and for minimum-wage employers.

Also under discussion is the phased introduction of a tax credit for self-employed workers along the lines of the PAYE credit.

This is in addition to a tax measure for truckers, an index-linked inheritance tax cut and the introduction of a “knowledge development box” scheme to cut the tax on patent income.

One proposal under examination would cut the 7 per cent USC rate by 1.5 percentage points, costing €396 million in 2016.

Another is a 1 percentage point cut from the 3.5 per cent USC rate, costing €97 million in 2016.

While a 0.5 percentage point cut from the 1.5 per cent USC rate is also under examination, the cost is unclear.

Such a move would cost €89 million in 2016 if all workers now on the rate continued to pay but the Government also plans to remove 90,000 low-paid workers from the USC net altogether, increasing the overall cost of the tax package.

Discussion of special PRSI measures follows concern expressed by the Low Pay Commission about a "step effect" under present rules which would penalise beneficiaries of a minimum wage increase.

With a minimum wage increase expected on budget day, the Government is examining some kind of a PRSI concession for employers.

The cost of phasing in an “earned income tax credit” for self-employed workers to equal the €1,650 PAYE credit depends on the size of the first step.