Taxes and political choices

 

Sir, – John FitzGerald points out an important and imminent political choice (“Government promises mean higher taxes must be on the way”, Business Opinion, May 28th).

The disturbing narrative from senior Ministers is that the role of the State in the economy needs to increase and that taxes, particularly incomes tax and VAT, need to rise to fund it.

This is very different from the promise of reduced income tax for lower- and middle-income earners which featured in the general election of 2020.

We are in danger of drifting back into a fiscal policy characterised by the disastrous “Whatever you’re having yourself” approach practised by previous Fianna Fáil and Green Party-led governments. Pandemic supports have created a detachment from fiscal reality which some in Government feel the need to perpetuate. There is evidence of labour shortages in certain sectors as, for some, the pandemic unemployment payment appears to act as a disincentive to work.

At present anyone earning above €32,000 a year is paying a de facto marginal rate of income tax of over 50 per cent. This is already a disincentive to skilled people to work here.

Before we move to increase the effective rate of taxation, we need to ask ourselves what the State can afford. The State is still carrying over €60 billion in debt from the economic crash. The interest rate on so-called cheap recent borrowing will eventually rise. Inflation looks set to return, if commodity prices are anything to go by.

What is required is a review of public expenditure to identify areas for savings through better value for money, the ending of restrictive practices and the discontinuation of services which the State simply cannot afford or which can be effectively provided by private business.

The political risk for the present Government, and particularly for Fine Gael, is the re-emergence of something akin to the Progressive Democrats. – Yours, etc,

JOE LENIHAN,

Dublin 9.