Government unveils five-year tax reduction plan

The Coalition has announced plans to cut income tax and universal social charge (USC) every year for the next five years and begin the process of reversing the public service pay cuts.

In the newly inaugurated spring statement, Minister for Finance Michael Noonan told the Dáil up to €1.5 billion would be available to reduce tax and improve services next year with a 50:50 split between the two priorities.

Mr Noonan said that, if re-elected, the Coalition would introduce budgets every year out to 2020 aimed at expanding the economy but only if it was “deemed prudent and appropriate”.

He promised there would be no return to the boom-and-bust policies that caused the economic downturn.

Minister for Public Expenditure and Reform Brendan Howlin said he had received Cabinet authorisation to open negotiations with the public-service unions on the restoration of some of the cuts imposed during the years of austerity.

“Given their value to the State, the unwinding of those measures will take time,” said Mr Howlin. “To do anything else would jeopardise the public finances again – something we will not do.”

Hard evidence

In an interview with The Irish Times, Mr Noonan said he had "absolute hard evidence" that €1.2 billion would be available for tax cuts and spending increases in the October budget.

“The firm figure would be €1.2 billion,” he said. “But we have an expectation – and it’s evidence-based expectation – that between now and October we will have somewhere around another €300 million to add to the €1.2 billion.”

Mr Noonan said “the ordinary man and woman in the street or at work can expect reductions in their personal taxes” next year.

“We’ll mirror what I did last year. We’ll direct the benefits of the tax cuts to low paid people and to middle-income people. Everybody will get something but we will cap the benefit, as we did last year, so that they aren’t disproportionate gains for people on very high incomes.”

Forecast surplus

As the economy benefits this year from a recovery in domestic demand and the euro’s weakness, the Government expects tax revenue to come in €1 billion ahead of target.

But no provision is made in the plan for the State’s return from the sale this week of part of its holding in Permanent TSB, or from a likely return later this year from some of its holdings in the nationalised Allied Irish Banks.

The Government also expects to receive a €500 million increase this year in the surplus forecast from the Central Bank. But a large portion of this sum cannot be included as revenue as it comes from capital gains realised on the sale of sovereign bonds held after the deal to scrap Anglo Irish Bank promissory notes.

Although Irish Water’s spending is provisionally included on the books until at least 2020 in the documentation underpinning the spring statement, Mr Howlin expressed confidence Eurostat would accept it should be kept off balance sheet. A decision is expected in July.

The Opposition attacked the statement as a political stunt, with Fianna Fáil finance spokesman Michael McGrath saying it contained nothing new.