When Finance Minister Michael Noonan presents Budget 2017 next Tuesday his scope for major fiscal concessions is necessarily limited. Indeed, given an economy recording rapid growth and falling unemployment, some will question – as the Central Bank has done – whether any fiscal stimulus is required.
Nevertheless, a €1.2 billion package is now generally assumed, two thirds of which is earmarked for extra spending and one third for tax cuts.
The public, when asked in the Irish Times/Ipsos MRBI poll how they would like to see any available money allocated in the budget, struck a somewhat different balance.
Four out of five respondents advocated even higher spending; one in five opted for lower taxes – cutting income tax and either reducing or abolishing the Universal Social Charge (USC) and water charges.
And among those giving public expenditure a higher priority, most wanted more spending on health and child care, and increases in the State pension and social welfare payments.
However under EU rules, the Government must operate within tight fiscal parameters to achieve annual deficit and debt reduction targets. A combination of even higher spending and lower taxes is unsustainable. Any large expenditure increases could, given the borrowing constraints, only be financed through even higher taxation – at a time when the tax base is narrowing.
The public, when asked whether they favoured retaining or scrapping water charges, backed their abolition by a two to one margin. The previous Fine Gael/Labour coalition introduced water charges. Fianna Fáil, which in government first proposed their introduction, has in opposition opportunistically reversed course.
The party now favours their abolition, as do two out of three of its supporters. That would leave the general taxpayer to finance Irish Water rather than users paying for what they consume as happens in most countries. It would also further narrow the tax base.
At present 29 per cent of income earners pay no tax. The budget measures on Tuesday, with some cuts in income tax and the USC envisaged, should see that number increase. As the Irish Tax Institute has pointed out in its budget submission "Ireland has the most progressive [PERSONAL TAX]system in the EU".
Those on a €75,000 salary in Ireland pay one fifth more in tax than their UK counterparts. Clearly, there is a need to broaden the tax base on grounds of equity, to improve competitiveness and to make the economy less vulnerable to economic shocks; one of the clear lessons for Ireland to emerge from the 2007 financial crisis.
A contracting tax base – and an over-reliance on general taxation – makes it harder to lower marginal personal tax rates. Mr Noonan’s efforts to do so, and his plans for tax reform, will be closely scrutinised on Tuesday.