Taoiseach Leo Varadkar has committed Fine Gael to further tax cuts, on top of a number of already promised reductions over the coming years, by flagging cuts to the rate of capital gains tax.
It comes after a number of tax-cutting promises from the Taoiseach in recent days, such as increasing the threshold at which people hit the higher, 40 per cent rate of income tax to €50,000; equalising how the self employed and PAYE workers are treated in the tax system; increasing income tax credits and increasing tax credits for homemakers.
He also said all resources raised from a mooted increase in carbon tax could be given back to people as tax credits and welfare payments. The promises made already have been criticised as unaffordable and unrealistic by the Opposition.
On the latest suggestion on capital gains tax, Fianna Fáil finance spokesman Michael McGrath said Mr Varadkar "is going around the place like Santa Claus at the moment".
“The people won’t be fooled because they know Fine Gael has form in making grandiose tax promises before elections and then dropping them afterwards,” Mr McGrath said in reference to the party’s proposal before the last election to abolish the universal social charge.
Movement of assets
The Taoiseach now says there is evidence that the 33 per cent rate of capital gains tax is affecting the current movement of assets in the economy.
Mr Varadkar told the Government’s Future Jobs Summit, which had a predominantly business audience, in Dublin on Thursday: “We’ll also, over the next couple of years, have to examine taxes like capital gains, for example, which was increased to raise revenue during the austerity years but one that perhaps now is reducing the frequency of turnover in assets and is having this negative effect.”
The rate of capital gains tax was cut to 20 per cent by former minister for finance Charlie McCreevy when Fianna Fáil took office under Bertie Ahern in 1997, and was steadily raised during the economic crisis, reaching its current 33 per cent level under Michael Noonan in 2012.
Government sources cited the move by Mr McCreevy as an example of how lowering the rate of capital gains tax can increase the overall yield.
While the rate has remained unchanged in recent years, a number of relief schemes have been put in place to help people reduce their capital gains tax bill in some instances. For example, a reduced capital gains tax rate of 10 per cent is allowed for the disposal of certain business assets, although this is limited to a total sale of assets worth €1 million over a person’s lifetime.
Before the October budget, the parliamentary budget office said that every percentage cut would cost €34 million a year. Capital gains tax will bring in an estimated €845 million this year.
Mr Varadkar’s income tax promise is estimated to cost €600 million a year, or €3 billion over five years.
Mr McGrath also warned against such tax promises as the country faces into Brexit.
“The reality is we are four months away from Brexit, the form of which we do not yet know,” the Cork South Central TD said. “Fianna Fáil will set out our tax package before the general election but it will be done in a considered way and will take account of the need to address shortcomings in critical frontline services.”