The Government faces a difficult task in raising the additional tax revenue it needs to bridge the budgetary gap, the Irish Tax Institute has said.
Institute president Martin Phelan said yesterday that there was no room to raise rates. Given that taxes on employment now contribute 42 per cent of the tax take, up from 29 per cent in 2007, Mr Phelan said, the Coalition was “going in the wrong way”.
“It’s difficult to see where they’ll raise those extra taxes. The capacity to absorb additional taxes is finite. The only way to solve this gap is to tackle the public expenditure deficit by eliminating public sector inefficiencies.”
To help meet the budgetary adjustment of €3.5 billion, it is expected the Government will look to secure additional tax revenues of €1.25 billion, some €200 million of which will be provided for by “carry-forward” measures from last year. This leaves €1.03 billion in new measures, with the property tax expected to generate about half of this.
With income tax rises off the agenda, one potential way to raise revenue is to push the universal social charge (USC) to 10 per cent for those earning more than €100,000. However, doing so would effectively push the top rate of tax up to 55 per cent, exceeding that in Britain, Germany, France and Luxembourg, claims the institute. This would rank Ireland fifth in terms of marginal income tax rates among the 34 OECD countries.
“Any further increase would start to seriously impact on our competitiveness and our ability to attract jobs in what is a fiercely competitive market,” said Mr Phelan.
Since 2007, the institute noted, eight taxes had been introduced: these include the income levy, merged into the USC; the second property tax; the household tax ; and the pension levy. Consequently, since 2008, a single income family with two children on a salary of €55,000 has paid almost €3,400 in extra taxes.
The other item on the agenda is to introduce a property tax, which could pull in €500 million. However, Cora O’Brien, director of technical services with the institute, said it would be a “big challenge” to get compliance, given the experience of the household charge. At present, some 600,000 people file their own tax returns; the property tax might require 1.6 million households to do so.
“It will be a big leap in the administration system,” she said. It will also be a big leap for household budgets. While an average figure of €200 has been bandied about, Mr Phelan noted that “no one is the average person”.
“People will be shocked,” he said. A 0.25 per cent charge on a house valued at €300,000 is €750, while a house with a €700,000 valuation will come in at €1,750.
