Do the Progressive Democrat tax proposals stack up? Economics editor Marc Coleman gives his verdict
A return pilgrimage to familiar places can provide some reassurance when a battle is looming. Last Sunday the Progressive Democrats returned to the city of their birth and resorted to their first battle cry as they prepare to distinguish themselves from Fianna Fáil.
As far as the PDs are concerned, the era of tax cuts is not over whatever Bertie Ahern may say, and further cuts in income tax are desirable.
According to what PD party sources say are independently-validated results, they are also possible.
The big-picture maths goes something like this.
At present the Government is taking in €52 billion in revenue each year between taxes and other receipts.
According to PD calculations, over the period of the next government - 2007 to 2012 - real economic growth and inflation will add around €36 billion to this figure.
If they are elected, public spending will continue to grow by around 5 per cent in real terms, i.e. allowing for inflation.
That will still leave just over €5 billion to fund a substantial reduction in income tax.
The PDs have set out their vision for income tax in terms of easy numbers. If their dreams come true then by 2012 the top rate of tax will be 40 per cent, compared to 42 per cent today.
Single earners will pay no income tax on earnings up to €20,000, and pay only the standard 20 per cent rate on earnings up to €40,000.
Married earners with two incomes will escape income tax on joint incomes of up to €40,000 and pay only the standard rate on joint incomes up to €100,000.
Provided their economic assumptions hold true, the PDs say they will do whatever must be done by way of changes to tax credits and income tax thresholds to make these numbers a reality.
But what really matters to prospective voters is how much these changes will put in their pockets.
A single earner on €50,000 now pays €10,840 in income tax. Under PD tax changes that person will pay just €5,880, a reduction of almost 46 per cent.
For single earners on €100,000 the reduction is 22 per cent.
For a married couple with two earners the equivalent reductions are 53 per cent for joint income of €50,000 and 44 per cent for joint income up to €100,000.
While these benefits are no small beer, the results are less impressive for married couples with one income. A single-income couple on an income of €50,000 will see a reduction of 41 per cent, while the same couple earning €100,000 will see a reduction of 22 per cent.
The gains are still substantial but show how tax individualisation has left its mark both on tax policy and the effects of tax changes.
Those on higher incomes gain proportionately less from the changes.From a PD point of view, the changes fit well with an electoral base that occupies the middle-income bracket and has more than its fair share of double-income couples.
However, as Opposition politicians have reminded them, the PDs have so far failed to deliver on a previous election commitment to ensure that only 20 per cent of income earners pay the higher rate of income tax. Their promises can only be as good as the economic assumptions they are based on.
Thanks to high inflation and wage growth 32 per cent of income earners now pay the top rate of income tax. An upturn in inflation between now and 2012 would make an income of €40,000 - the level below which single earners will be on the standard rate and below which married working couples will be tax exempt - look far less attractive than it does now.
The assumption of 5 per cent real economic growth is more defensible. In its latest medium-term economic forecast the Economic and Social Research Institute (ESRI) has predicted more or less the same outcome, as has the Organisation for Economic Co-Operation and Development (OECD). But these same organisations have, indirectly, raised other caveats about the PD approach to tax reform.
In its latest quarterly economic commentary the ESRI has warned of inflationary pressures building up in the economy. Warning against a pre-election spending binge, the ESRI's Dr Alan Barrett said that badly-timed tax cuts could also cause inflation.
The PDs have promised to implement their policies "over the lifetime of the government". If by then they are in government it might make more sense for tax cuts to be implemented in the later years of the government when the economy is likely to be weaker than now and less susceptible to inflation.
But there is another caveat. A recent OECD study concluded that Ireland has already the lowest income tax levels in the developed world. The OECD has also pointed to Ireland's high burden of indirect taxation. Late last year the National Competitiveness Council called for a debate on wealth taxation.
In holding their conference in Limerick last weekend the PDs may have chosen the right place for their battle.
Whether they have chosen the right issue to fight about is a different matter.