The decision to publish documents outlining some of the tax options for October’s Budget is welcome. Previously these documents were only published after the event. Doing so now should go some way to inform debate, though it will not make the final choices any easier. With just €330 million estimated to be available for tax reductions, the options will be restricted.
Given the limited room for manoeuvre, it is a pity the the Government seems so intent on cutting the USC and persisting with the plan to abolish this charge over time. The USC, when introduced, was a blunt instrument for sure, but it had some advantages.
It ensured most employees made some contribution and it was highly progressive, taking a much bigger chunk from higher earners, including from earnings not exposed to income tax. Focusing purely on its abolition limits possible reforms elsewhere.
The documents outline other choices too. If the USC plan is to progress, the Government has to decide how to do it. This involves choices about the best way to start phasing out the USC, and whether other taxes or charges will be introduced either to raise some money to help fund the move, for equity reasons, or to keep the tax base as wide as possible. Previously such choices were made behind closed doors. Now the process is more transparent which may improve the outcome.
The Government will face other questions. Should it press ahead with the planned tax on sugary drinks and, if so, how will it be introduced? What is the best way to meet the commitment to extend mortgage interest relief?
How should it proceed on promises to reduce capital gains tax for entrepreneurs and capital acquisitions tax for those receiving inheritances from their parents?
It is the normal stuff of the annual Budget process but there are two things to note. The first are the tight constraints. The second is the new political environment, in which the Government must keep enough of its political friends and opponents on board to get the Budget through. Given the extent of the promises made and the limit on the extra resources available, this will be no easy task.