Taoiseach Enda Kenny warned last night that resurgent economic growth would not free the Government to deliver a big tax cut in next month’s budget.
After a day in which Minister for Finance Michael Noonan upgraded his growth forecast for the second time in seven days, Mr Kenny declared that the decisions taken in coming weeks could secure Ireland’s recovery or threaten it. “While the public finances are not in a position to significantly reduce overall tax levels, the Government is committed to continuing to reform the tax system in a way that reinforces and secures our economic recovery,” he said.
Although the Government has been seeking for weeks to damp down the clamour for a giveaway budget in mid-October, the release yesterday of figures showing the economy grew at an annual rate of 7.7 per cent in April-June has increased its scope to start an overhaul of the income tax system next year .
“The Government has agreed that the next priority [as regards taxation] is to reduce the 52 per cent income tax rate on low- and middle-income earners,” the Taoiseach told a business dinner in Dublin.
“The 52 per cent marginal tax rate, comprising income tax, PRSI and the universal social charge, is – I believe – anti-enterprise, anti-investment and anti-jobs. It is damaging not alone our businesses, our workers and their families, it is equally damaging to Ireland’s attractiveness as a location for foreign investors.
“I believe it will make it harder to get our emigrants to come back home as the recovery continues.”
In spite of the Taoiseach’s caution in respect of overall tax revenues, such remarks indicate that modest concessions will be made next month.
The data from the Central Statistics Office, which showed that gross domestic product grew 5.7 per cent in the first six months of the year, prompted Mr Noonan to forecast yesterday that the economy would grow by some 4.5 per cent for the year as a whole.
Mr Noonan had said only one week previously that growth would be a little ahead of 3 per cent. He indicated yesterday there would be no need now for any additional taxes or additional spending cutbacks in the budget.
The data, the strongest for many years, indicates that the economic recovery is deepening. Analysts said they were particularly encouraged by the improvement in demand in the domestic sector of the economy.
The Government has seized on the figures as evidence that its plan to fix the economy is working. “We have more work to do,” said Minister for Public Expenditure Brendan Howlin, “but today’s figures are a vindication of the actions we have taken so far and an indication that these policies should not be abandoned as the evidence mounts that they are working.”
Although some private sector economists believe growth this year may yet reach 5 per cent, Mr Noonan warned that growth may slow down again.
“Obviously at the start when you’re in a catch-up phase of an economy after a recession, you’ll get very high growth figures in the early stages,” he told reporters at Government Buildings .
“But as it settles I would hope we would have growth of around 3 per cent in the next five, and, God willing, for the next 10 years, if we can avoid a boom and bust model.”