Labour tax plan favours lower paid

ANOTHER day, another tax plan. And here is the self-interested single voter's guide, based on what the parties have explicitly offered so far.

If you earn a below-average wage of around £10,000, vote for the Labour Party. If you earn around the average wage of £15,000, then Fine Gael would be a better bet. And if your salary is around £20,000, then Fianna Fail and the Progressive Democrats appear to offer more. At higher salaries, the Opposition parties also offer greater gains, with the PDs plan to cut the top rate to 40 per cent being of greatest benefit to those on higher earnings.

Of course, people may take the tax promises with a pinch of salt. And other factors will enter the equation, such as who the voters trust most with the economy.

The most striking feature of the tax strategy produced by the Labour Party yesterday is the massive resources it proposes to spend on increasing personal tax allowances. It represents the clearest pitch yet by the coalition parties to selling their tax plan to lower income earners.

Overall, the party plans to devote some two-thirds of £1.5 billion which it proposes to spend in its tax package on increasing personal tax allowances. Much of the rest will go towards widening the standard rate income tax band.

The key difference between the tax plans being put forward by the Government parties and the Opposition is this focus by the coalition on increasing tax allowances, compared to the concentration of Fianna Fail and the Progressive

Democrats on cutting tax rates.

Both sides propose a substantial widening of the standard rate income tax band to ensure that fewer people pay at the higher tax rate.

Labour has proposed an even larger increase in the personal tax allowance than Fine Gael. The larger party has proposed to increase the allowance for a single person to around £4,400, while Labour has gone for £5,000. Today, Democratic Left is expected to plump for a figure in between.

Under the Labour plan, in five years the first £111 of weekly income will be exempt from tax for a single earner - compared to £69 now - and the first £200 for a married person.

Higher tax allowances benefit all taxpayers. In cash terms, an increase in allowances is worth more to higher rate taxpayers. Every £100 increase in the personal allowance is currently worth £26 to someone paying at the standard rate and £48 to a higher rate taxpayer.

But the argument is that the extra £26 is worth more to someone earning £200 a week than the £48 is worth to someone earning £500. Increasing allowances can also help to address some of the disincentives which the interaction of the tax and welfare systems provide.

Pushing up allowances gives a major benefit to those on average and below-average earnings. For example, the five-year Labour plan offers major gains to a single earner on around £10,000, or a married couple with one earner on roughly twice this amount. Moving to higher salaries, the picture changes.

At the average wage of roughly £15,000, the Fine Gael plan offers proportionately more. This is mainly because the party proposes to move to exempt salaries under £17,000 from the 2.25 per cent health and employment levies, as well as introducing a hefty increase in allowances.

On higher income levels, the tax rate reductions offered by Fianna Fail and the Progressive Democrats start to offer more to the voters.

Voters also have to consider specific factors, such as commitments by Fianna Fail and Fine Gael to give new breaks to families with children, compared to Labour's plan to offer more by way of raising child benefit.

So after the tax plans are digested, what happens next? The unveiling of the Democratic Left and PD platforms today and tomorrow are set to highlight the difference between the two alternative governments.

On the one side, Democratic Left will argue for a tax plan similar to Labour's and major efforts to redistribute resources to the less well-off. The PDs, meanwhile, are calling for unemployment rates to be frozen and for the abolition of employees' PRSI which, they believe, can be afforded.

The PDs are also calling for privatisation, although Fianna Fail is somewhat more cautious in this area.

Labour policy yesterday called for a continuation of a State ownership in banking while Democratic Left will call for continued investment in the State sector and a greater role for the industrial support agencies. The PDs, meanwhile, want to sell off the State banks and look askance at the idea of a greater role for the State agencies.

The election may thus develop into a fight between two alternative economic ideologies. How Fianna Fail responds to the PD agenda will now be crucial.