Budget 2024 should mark the first step in building out a better economic model, predicated on inclusive and sustainable improvements in living standards. It should not be a tax cutting budget.
Proposed cuts to income tax rates or bands and to the Universal Social Charge have all been flagged in the media. Such moves would be extremely regressive. The evidence is clear that higher income households will disproportionately benefit from such changes.
Tax cuts of this nature will not just make it more difficult to meet pre-existing and future challenges but would also be pro-cyclical and inflationary given the current juncture of the economy. If there is ever a time for tax cuts it is to stimulate demand during a recession – not when the economy is at or close to overheating and operating with significant capacity constraints.
There are better ways to address the cost-of-living crisis than mere one-off measures. We certainly do need to protect low-income households from cost-of-living pressures but through structural uplifts in child, working age and old age payments that adequately benchmark against wages and the cost of living. We are clearly not all in this together. Enforced deprivation increased from 13.8 per cent in 2021 to 17.7 per cent in 2022 at the same time as net household wealth passed €1 trillion.
Budget 2025 main points: Energy credits, bonus welfare payments, higher minimum wage and tax changes
Budget 2025 calculator: How this year’s budget will affect your income
Renters and households with children most likely to have income that doesn’t match needs - ESRI
Households worse off over failure to peg tax and welfare changes to income growth - ESRI
The risks underlying a reliance on an elevated corporation tax yield are well understood, with circa €12 billion in receipts potentially transitory in nature
What type of universal measures should we pursue? The Irish Congress of Trade Unions (ICTU) is proposing, as we did last year, that targeted reductions in end-user costs for public services such as transport, health, childcare and education would alleviate cost of living pressures without stoking inflation. Budget 2024 should also increase all welfare payments to fully compensate for the surge in price inflation that we have experienced. Alongside this, the minimum wage must become a genuine living wage.
The headline fiscal position is strong. But this is mainly due to the surprisingly robust and potentially unsustainable performance of the corporation tax yield. The risks underlying a reliance on an elevated corporation tax yield are well understood, with circa €12 billion in receipts potentially transitory in nature. It would be unwise to use windfall receipts to fund current spending increases or permanent tax cuts.
The medium-to-long term fiscal position is much more challenging. Age related-expenditure is projected to increase by over 3 per cent of GNI* (modified Gross National Income) by 2030 and even further in the following decades. Climate action will lead to diminished excise revenues from fossil fuels and related activities and necessitate greater expenditure across a range of areas. The corporation tax yield is extremely vulnerable to evolving international tax games and to decisions made in other countries.
Threats to fiscal sustainability
The 2022 report of the independent Commission on Taxation and Welfare was clear that the medium-to-long-term threats to fiscal sustainability were of such magnitude that taxes and PRSI as a share of national income will need to increase materially in the years ahead.
While tax cuts are salient and might provide a quick sugar rush, they will do nothing to address any of the long-term challenges we face
Tax cuts will make it all that much harder to deal with the housing crisis, to cut waiting lists in healthcare and fund Sláintecare, to expand public transport provision, to reduce classroom sizes, and to bring social protection rates up to adequate levels. At the same time, economic and population growth is putting enormous pressure on our infrastructure and we will need to invest to ensure future prosperity.
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So why are tax cuts on the agenda? What long-term strategic purpose do they serve? While tax cuts are salient and might provide a quick sugar rush, they will do nothing to address any of the long-term challenges we face.
ICTU instead considers that more revenue needs to be raised over the coming years and that that the greatest scope to do this is from employer and self-employed PRSI, capital taxation (a wealth tax, reforms to CGT and CAT etc), and reform of tax expenditures (abolition of the Special Assignee Relief Programme, Help to Buy scheme, and entrepreneur’s relief etc).
We are not arguing that individual taxes shouldn’t be reformed or that the tax system can’t be made fairer or more efficient. But we are saying that overall taxes and PRSI will need to increase as a share of national income over the longer-term.
Eventually we will need to have an honest conversation about the long-term funding needs of the State. That conversation should begin in Budget 2024.
Owen Reidy is general secretary of ICTU
