Over the course of his first three budgets, the Minister for Finance, Mr McCreevy, has radically reformed the personal tax system to good effect.
These reforms have played a critical part in removing the disincentives to work and have helped boost the supply of labour, especially participation by women. With unemployment having fallen below 4 per cent from more than 10 per cent when this Government came to power, it has to be said that the battle is won.
Thus it was unnecessary to cut income taxes so aggressively. The focus of fiscal policy should have been aimed at maximising living standards rather than maximising growth. Nevertheless, the initiatives with regard to childcare are welcome, as is the continuation of the individualisation process. But more urgent attention should have been focused on the quality of public services and making a priority of capital expenditure projects.
It will be interesting to see what changes to the tax treatment of share options that the Minister is considering, as profit sharing and share options will become an integral part of employee remuneration over time. They are already critically important to the high-tech industry.
The Budget has gone some way to encouraging long-term savings and this is a very positive development, but more progress on this front is warranted. In addition, the decision to apply the same rate of tax to certain foreign investment funds as that applied to Irish-based investments, should result in increased choice for the domestic consumer. The Budget has also proposed tax relief on life assurance products aimed at providing for long-term care. These measures are to be welcomed and will support an area that is likely to be an increasing cost for many families. The abolition of probate tax is also to be welcomed and is a further reflection of the modernisation of capital taxes within Ireland.
Patrick O'Sullivan is an economist with Bank of Ireland Private Banking