A THREE-YEAR pay freeze, a new tax rate for people earning over €100,000, and a reduction of tax relief on pension contributions are among the Labour Party proposals for dealing with the budget deficit.
Labour leader Eamon Gilmore told the Dáil yesterday that a 50:50 split between extra taxes and spending cuts should be followed to reduce the deficit to 3 per cent of GDP by 2014.
“Given the scale of the deficit we need to spread the burden of adjustment for it to be economically or socially credible.”
Mr Gilmore said the reduction in capital spending over the next three years should be counter-balanced by taking €2 billion from the National Pension Reserve Fund to provide the capital for a strategic investment bank. He said it no longer made sense to continue payments into the fund through borrowing money on the international markets.
Mr Gilmore said a voluntary redundancy scheme in the public service would be required but should be confined to areas of identifiable over-staffing, with critical frontline public services protected.
He criticised the Government for having no pay policy outside the public service, and said he would like to see a negotiated pay freeze for three years.
The social welfare budget would have to be curtailed, but he said it would be possible to achieve considerable savings by reforming the way the system works through a more robust and modern enforcement of anti-fraud measures which could bring savings of at least €100 million.
The country now faced a difficult challenge to gradually raise the total level of tax revenue as a share of gross national product (GNP) without hurting employment but it was not impossible.
“As the governor of the Central Bank has pointed out, our ratio of tax to GNP has been higher in the quite recent past, when the economy was still performing extremely well.”
Mr Gilmore said the place to start was with broadening the tax base, with a major programme of reform to curtail the network of tax breaks and tax expenditures.
“Some €3 billion is being spent in the area of pension reliefs, which should be curtailed by at least €500 million, particularly by limiting the total amount of relief that can be claimed by any individual, so as to make the system fairer.”
He also said reliefs for property-based investment, which were now costing €380 million, should be scrapped, and interest relief on rental income from investment property must be significantly curtailed by at least €430 million.
Other reliefs that should be scrapped included those on trade union subscriptions and on patent royalties.
“Labour has been arguing for some time that in the area of taxation, those who have the most, must contribute the most. We have proposed a 48 per cent tax-rate for the highest earners.
“We also need a system whereby a minimum effective tax rate is applied to high earners to limit the total relief that any one person can obtain from all tax breaks combined.”
Mr Gilmore said water charges should be phased in on a metered basis, and he proposed a new bank levy once the capital levels in the banks were adequate.
He proposed schemes to create jobs which would cost about €230 million in the short term but would save money in the longer term because it would get people off the dole more quickly.
MAIN POINTS LABOUR'S PLANS
* A three per cent reduction in pay and non-pay costs in the public sector to save €2.8 billion over three years, including payroll reductions of €1.4 billion. A voluntary redundancy scheme in the public service, confined to areas of identifiable over-staffing
* Abolition of tax relief on trade union subscriptions
* Reduction in drug costs by €300 million by using generic medicines and further reductions through a “robust” negotiations with drug companies
* Cuts in pension reliefs of at least €500 million, particularly by limiting amount individuals claim Abolition of all property-based investment tax reliefs
* Scrapping tax relief costing €50 million on patent royalties
* Introduction of 48 per cent tax rate for highest earners
* Minimum effective tax rate for high earners to limit total tax relief
* Capital gains income should be subject to PRSI and levies in the same way as earned income
* Increase tax on second homes
* Phase in water charges on metered basis
* New bank levy once capital levels in banks are adequate
* Temporary fees commission to control fees and prices in professions such as law and medicine
* Reduce capital spending by €2.5 billion over three years
Investing €2 billion from the pension reserve fund to provide capital for a strategic investment bank to fund capital spending