A TAX or levy for higher earners has come back onto the table in the Government’s internal budget negotiations, according to informed sources.
The levy of 1 or 2 per cent has led to strong differences of opinion between Government departments and agencies over its effectiveness. Bodies such as the IDA and Enterprise Ireland as well as the departments of Enterprise and Employment and Finance are believed to have argued against them on the basis that it could push the marginal tax rate for higher earners close to 60 per cent, and dissuade companies with high-calibre employees from choosing Ireland as a base.
According to the sources, others within Government have argued the levy would be important from a political perspective as a “solidarity clause”. Such a measure would send out a strong message to social partners and to others that principles of fairness and balance were being adhered to.
This has been described as having a “demonstration effect” which will not raise significant revenue for the exchequer but will send out an unequivocal message that high earners are being targeted. Minister for Finance Brian Lenihan has consistently said, most recently at the launch of the Pre-Budget Outlook this month, that the only new tax in the budget would be the carbon levy.
However, discussions on whether or not the new pay levy for higher earners will apply have not yet reached conclusion, it is understood.
Financial Services Ireland (FSI), the Ibec group that represents the Irish financial services industry, yesterday said income taxes should be left untouched in the budget.
There are also firm suggestions from within Government that the net cut in public sector pay will be closer to €1 billion than the €1.3 billion proposed since early autumn.
However, Government sources said last night that the overall target of savings remained €4 billion. The budget and the continuing pay talks with the social partners dominated yesterday’s meeting of Cabinet.
Ministers have not yet reached agreement on the final details of the budget. A further Cabinet meeting has been scheduled for this evening and an additional meeting for tomorrow has not yet been ruled out. The Minister for Finance will also brief Fianna Fáil TDs and Senators at a specially convened meeting of the parliamentary party tomorrow. The budget, to be announced next Wednesday, is expected to include cuts in child benefit allowances, albeit with protections for the lower paid.
While pensions are expected to remain untouched, there will also be cuts in social welfare. There has been growing speculation that the budget will target the jobseeker’s allowance for cuts, with particular emphasis on young single people.