TAX BREAKS to lower and middle income families can have a more direct effect on stimulating economic growth through increased consumption than granting equivalent breaks to the very wealthy who may save the money, a conference has heard.
British researcher Vidhya Alakeson said a possible £2 billion (€2.3 billion) tax break in the UK currently being considered for those earning over £100,000 through abolishing the 50 per cent tax rate would be more beneficial if granted to lower and middle income groups.
Ms Alakeson, who is director of research and strategy at the Resolution Foundation, which works to improve the lives of Britain's six million low to middle income households, was speaking at a seminar in Cork entitled Incomes – Instruments of Recovery.
She said applying the £2 billion tax break to the 11 million middle and lower income earners in the UK would be more beneficial in stimulating growth as they would spend it, unlike the wealthy who tended to use such breaks to add to their savings.
“The majority of the six million lower and middle income households in the UK spend what money they get and they spend it mainly on food and fuel . . . so giving them a £2 billion tax break would flow directly into the economy.”
Although inflation in the UK is running at a higher rate than in Ireland, she believes middle and lower income families here are just as squeezed financially and the same argument can be made that granting such families tax breaks would help stimulate economic growth here.
The seminar, jointly hosted by equality think tank Tasc and the Foundation for European Progressive Studies, also heard from Siptu economist Marie Sherlock, who challenged the view that the abolition of joint labour committees would lead to job creation.
Ms Sherlock said Minister for Enterprise, Jobs and Innovation Richard Bruton had claimed reform of minimum wages in low-paid sectors such as catering, hotels and contract cleaning would ensure the viability of small and medium enterprises, and support job creation. Many of these sectors were already in a process of permanent contraction, and the problem of survival was really one of oversupply in markets corrupted by tax and planning policies of the recent past, she said.
A report by economic consultant Peter Bacon found 15,000 hotel rooms need to be cut over the coming years and with household and business spending set to decline in 2011 and 2012, there was little prospect of job creation in the sector in the medium term.
Reform of wage-setting mechanisms for the low-paid sectors was needed especially to resolve geographical anomalies where workplaces just a few miles apart had different wage rates, she added.
However, it was important and notable that the Government had committed to retaining a framework for the agreeing of pay and conditions between employers and the representatives of workers, Ms Sherlock told the seminar.