Economy

Political promises get reality check from Tax Strategy Group

Commitment to increase entry level of higher rate of income tax costed at €2.3 billion

The Tax Strategy Group recommends that politicians consider committing to an annual 0.25 to 0.5 point increase in PRSI rates for a period of five to 10 years.

Thu Jul 18 2019 - 05:37

There are quite a few places in the just-published Tax Strategy Group papers where you might reasonably speculate that senior civil servants are putting a shot across the bows of their political masters. Interesting to see, for example, that the Taoiseach’s commitment to increase the entry level of the higher 40 per cent income tax rate is specifically costed in the document – at an eye-watering €2.3 billion.

Like the promise to eliminate the universal social charge (USC), this one is simply unaffordable unless some way is found to pay for it. The programme for government suggested that one way of doing this was abolishing the PAYE tax allowance for the highest earners, but this is complicated and has never looked like happening.

Looking over longer time periods is one of the values of the public service and a clear warning is also sounded in the papers about the social insurance fund. This is is funded largely by PRSI payments and spends money on entitlements such as jobseekers’ and illness benefits.

Having lurched into deficit during the crisis, the fund is now just back in surplus, but is expected to lapse into deficit again shortly. A 2017 review said it could require an exchequer subvention of €1.7 billion by 2025, though an improvements in the jobs market since then have improved the outlook a bit.

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The officials recommend that politicians consider committing to an annual 0.25 to 0.5 point increase in PRSI rates – now 4 per cent for those in work – for a period of five to 10 years. This would raise €200 million to €400 million a year and would move social insurance contributions here closer to the European Union norm. They also recommend that the self-employed should pay significantly more than they do.

It is part of the argument about stabilising the tax and social insurance base for the long term. But with this likely to be the last budget before a general election, don't expect this one to be tackled, nor the wider issue of merging the USC and PRSI, which we were told recently in classic Sir Humphrey fashion was complicated and required further study and consultation.

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