Lenihan not ruling out bringing more lower earners into tax net

MINISTER FOR Finance Brian Lenihan yesterday declined to rule out bringing more low-income earners into the tax net, but said that any potential economic recovery would likely be stymied by further increases in taxation.

Speaking at the inaugural International Financial Services Summit in the Four Seasons Hotel in Dublin, Mr Lenihan would not be drawn on whether the Government will consider widening the tax bracket to include more low-income earners, preferring to reiterate that higher tax rates often prove a deterrent to work.

“Ireland has a relatively low rate of tax on low-income earners, half of which are outside of the tax bracket, and it is an issue which we will have to look at in the future,” he said.

“However, further tax increases by the Government will not increase the incentive to work, and it must be remembered that it was Government-sponsored incentives to work that contributed to economic growth in the Nineties.”

“You cannot tax yourself out of a recession,” he added.

This week the OECD, in its review of the Irish economy, recommended bringing more low earners into the tax net.

Following last year’s budget debacle, when an increase in the level of VAT drove consumers across the Border and resulted in hundreds of millions of euro of lost trade to the UK, Mr Lenihan said he would wait until after the UK had made its preliminary budget proposals before making his own submissions.

Mr Lenihan also rejected suggestions that the Government had reversed its stance over the agreed balance between tax increases and spending cuts announced in the 2010 fiscal adjustments last April.

“I made it very clear when speaking on the fiscal adjustment programme that the figure for tax was a maximum, and that the figure for expenditure was a minimum, so seeking the greater balance from expenditure does not represent a change in Government policy,” he said.

Commenting on the positive impact of a reduction in Government expenditure, Mr Lenihan said Ireland was the only country that had managed to reduce its public-sector payroll with measures such as the introduction of the pension levy, and this year would see a 6 per cent improvement in competitiveness compared with several of the State’s advanced trading partners, including the UK.