Sir The recent publication of the Exchequer Returns for the third quarter of this year would seem to confirm that there is now significant scope for tax reform in, next year's Budget, and particularly for some badly needed relief for the PAYE sector.
There is, however, also an important debate going on about the form of the tax package, with Democratic Left arguing that the relief should be directed primarily at those on low and middle incomes and the Progressive Democrats campaigning unashamedly for measures which would discriminate blatantly in favour of the well off. This is a debate which is of vital interest to young people, as the young workers constitute a disproportionate number of those who are on low wages.
Basically, the options open to the Government are to increase tax free allowances and widen the bands, as advocated by Democratic Left, or to reduce the tax rates as sought by the Progressive Democrats. A few simple figures will show that those on modest incomes are likely to benefit far more from increasing allowances than by reducing the rates.
For instance, if the Government decided that it had £140 million to spend on tax relief it could increase the tax free allowance for everyone by £6, or it could reduce the existing tax rates, by one per cent to 26 per cent and 47 per cent. However a young worker earning £100 a week would benefit by £1.62 a week by increasing the tax free allowance, but would benefit by only 34p if the rates were reduced.
If the Government were to implement the PDs demands to reduce the tax rates to 20 per cent and 40 per cent respectively, it would cost a staggering £1,030 million, which could clearly be paid for only by sweeping cuts in essential services. But who would benefit most from this approach? A person on £100 a week would gain £2, someone on £200 a week would gain less than £10, a person on £500 a week would gain nearly £33, while a super earner on £700 a week would benefit by nearly £49 a week. Someone earning £500 a week would gain 16 times more than someone on £100 a week, if the PDs get their way it is time for young people to become involved in the debate on tax reform, and to ensure that relief is channelled where it is most needed to those on low and middle incomes. - Yours, etc.,
Chairperson,
Young Democratic Left,
Leinster House,
Dublin 2