Politics

Fianna Fáil commits to improved services instead of tax cuts

Labour pledges to cut USC on incomes up to €72,000 and extend PRSI relief

Fianna Fáil spokesperson on finance Michael McGrath during a briefing on the economic choice facing voters. Photograph: Gareth Chaney Collins
Fianna Fáil spokesperson on finance Michael McGrath during a briefing on the economic choice facing voters. Photograph: Gareth Chaney Collins
Fiach Kelly
Sarah Bardon
Tue Feb 09 2016 - 01:01

Fianna Fáil would direct any available funding towards maintaining public services instead of implementing tax cuts if the economy does not grow at a rate that will provide sufficient money for the next government.

Finance spokesman Michael McGrath and Seán Fleming, its public expenditure spokesman, made the commitment at the publication of Fianna Fáil’s economic plan for the general election.

Labour has also published its economic plan, committing to abolishing the Universal Social Charge on incomes up to €72,000 and introduce a tax of 15 cent on sugary drinks.

If growth continued in line with Department of Finance forecasts, Fianna Fáil would split the available money between public spending and tax cuts on a two-thirds to one-third basis. This €8.6 billon would be available to spend, as the so-called “fiscal space”, over the lifetime of the next government.

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Fianna Fáil would only commit to spending €8.3 billion of the €8.6 billion and an additional €1.2 billion-€1.5 billion made available through the loosening of EU budgetary rules will be set aside as a buffer against economic shocks.

‘Protect services’

If the economy slows down, Fianna Fáil’s priority “will be to protect vital frontline services ahead of tax cuts,”, Mr McGrath said, adding that Fine Gael would instead favour tax cuts for the wealthy in such a scenario.

Fianna Fáil’s USC proposals would abolish the levy for those earning less than €80,000 within five years. The 8 per cent USC rate would continue to apply to income above €80,000, which means the maximum someone would benefit by would be €4,000.

In its first budget, the party would abolish the USC rate that applies on the first €12,012 of income, costing €237 million out of around €500 million available for Budget 2017. Fine Gael has said it will cut the main 5.5 per cent rate, which applies up to €70,044, by 1 per cent in its first budget. Fianna Fáil’s abolition of the 3 per cent rate of USC, which applies on earnings up to €18,668, would be phased in over two budgets.

‘Penal tax’

However, Minister for Public Expenditure and Reform Brendan Howlin blamed Fianna Fáil for the “penal tax”. He also rejected IMF concerns about the abolition of USC and said: “Policy instruments are a matter for independently elected parliaments and government. The IMF don’t or shouldn’t go into policy instruments. They can do advices on it but that is why we have elections and parliaments.”

The Labour proposals will also freeze the benefit on incomes between €72,000 and €100,000 and clawback will be introduced for those earning above €120,000. Anyone earning above that will pay the same tax as they do now.

The party is also proposing to introduce additional PRSI relief at low and middle-income working families.

Labour will extend PRSI relief of up to €14 per week for those on incomes between €18,305 and €36,608. This is in contrast to the Fine Gael plan to extend PRSI to all those incomes over €13,000.

Other measures include an increase in the bank levy by €350 million, increased tobacco duties and a rise in the income tax credit for self-employed. It is proposing a cap on all childcare costs to no more than €2 per hour and to introduce free GP care for all by 2021. Fine Gael has dropped its plans to extend it to all claiming it is unrealistic.