Minister for Finance Brian Lenihan today refused to rule out bringing more low income earners in to the tax net, but said that any potential economic recovery would likely be stifled by further large increases in taxation by the Government.
Speaking at the inaugural International Financial Services Summit in the Four Seasons Hotel in Dublin, Mr Lenihan would not be drawn on whether the Government will consider widening the tax bracket to include more low income earners, preferring to reiterate that higher tax rates often prove a deterrent to work.
“Ireland has a relatively low rate of tax on low income earners, half of which are outside of the tax bracket, and it is an issue which we will have to look at in the future,” he said.
“However, further tax increases by the Government will not increase the incentive to work, and it must be remembered that it was Government-sponsored incentives to work that contributed to economic growth in the 90s,” he said. “You cannot tax yourself out of a recession.”
Mr Lenihan rejected suggestions that the Government had reversed its stance over the balance between tax increases and spending cuts announced in the 2010 fiscal adjustments last April.
“I made it very clear when speaking on the fiscal adjustment programme that the figure for tax was a maximum, and that the figure for expenditure was a minimum, so seeking the greater balance from expenditure does not represent a change in government policy,” he said.
“Substantial increases in taxation are not the way out for the economy.”
Mr Lenihan also said Ireland was the only country that had managed to reduce its public sector payroll with measures such as the introduction of the pension levy, and this year would see a 6 per cent improvement in competiveness compared with several of the State’s advanced trading partners, including the UK.
“Export-led growth drove the good times in the nineteen-nineties and as our competiveness is crucial to that, we are making the correct steps in private and public expenditure to make this happen,” he said.