Government has scope for €400m in tax cuts, Ibec claims

Recent improvements in Ireland’s headline economic numbers means the Government has scope to deliver €400 million in tax cuts in the budget , according to Ibec.

The employers’ group claimed this reduction in the tax burden would lead to a 4 per cent rise in disposable income next year.

In its latest Consumer Monitor report, Ibec said rising employment, strong consumer sentiment and recovering retail sales now pointed to a “solid recovery in the domestic economy”.

The group said reducing the tax burden on hard-pressed households must be a priority for the Government after several years of austerity.

On the basis of recent improvements in Government finances, it calculated there was scope for €300 million worth of income tax reductions and an additional €100 million reduction in consumer taxes and the abolition of the pension levy.

In its report, the group said the most positive indicator of a consumer recovery was “the spectacular rise” in employment, with 65,000 more people employed than two years ago.

However, it said the mass exodus of young people aged 20 to 34, as evidenced in the recent population statistics, posed a significant challenge.

On a more positive note, Ibec said as the outlook for personal income and the job market improved, households would increase their consumption and reduce the saving rate.

Since 2009 the saving rate has fallen from 16.5 per cent to 12.5 per cent, and was expected to fall further on the back of rising consumer sentiment, it said.

Where wage pressures have emerged they are being driven by the taxation hit to take-home pay, it noted.

Grocery costs and mortgage interest have fallen due to sharp price competition and lower interest rates respectively, Ibec said.

However, it said items such as electricity and heating had risen moderately, and the introduction of water charges was likely to mpact on spending power further.

“ As households reduce their liabilities and housing assets benefit from rising house prices, household wealth will recover.”

This would support private consumption in the medium-term, although in the short-term debt remains a drag on consumption, the group said.

It said falling tracker mortgage rates had been a major boost to the most indebted households in recent years, noting the monthly cost of a €440,000 tracker mortgage taken out in 2007 had fallen by almost €800.

Chief economist Fergal O’Brien said: “Now is the time to secure the recovery. The Government must take steps in the budget to ease pressure on households. Positive economic trends mean income tax can now be reduced.”

"Ireland is regaining its attractiveness as a place to live and work. In the last three years the number of immigrants climbed to nearly 56,000 people, 30 per cent are Irish people returning as the economy recovers."

Mr O’Brien said Dublin had been the biggest winner from the labour market turnaround with employment up 30,000 in the capital since the first half of 2012.

“We now need to introduce policies that encourage greater numbers of recent emigrants to come home. This should involve tax cuts, further institutional reform and increased investment in infrastructure and education,” he added.