DEMOCRATIC Left's accusation that the Progressive Democrats' plan to cut £900 million from PRSI contributions would undermine the social contract and put the future of contributory payments in doubt shows that the real meat of the tax debate is now on the table.
The PDs, of course, reject such suggestions, maintaining that employers pay over two thirds of the contributions. With the publication of the PD manifesto today, this issue should hot up.
Proinsias De Rossa contends that PRSI payments can now meet virtually all demands from sickness and disability payments to contributory pensions. With a shortfall of £900 million he questions whether these will be able to be maintained without means testing.
It is obvious that all the parties have been working together to coordinate their various proposals. On the face of it, there is little to differentiate Democratic Left's tax policy from its erstwhile Rainbow partners. All parties are firmly targeting the middle to lower income brackets.
Democratic Left has come in somewhere between the plans of Labour and Fine Gael. The Government parties together appear to offer more than the Fianna Fail PD alliance to those on middle to low incomes.
Of course, the tax policies are by no means carved in stone. If spending is not held in check, or if the economy fails to grow as quickly as expected, then all bets are off.
Democratic Left is planning to spend 60 per cent of the £1.5 billion it has earmarked on increasing the basic tax free allowances. It has pitched the increase at the end of five years at £4,800 for a single person, between Labour's £5,000 and Fine Gael's £4,400.
This is one of the key differences between the Government and Opposition parties' policies. Fianna Fail and the Progressive Democrats have placed most emphasis on cutting tax rates.
CHANGES in tax free allowances are seen as more equitable, as they give most taxpayers the same order of increase. In percentage terms this means more to someone on low pay than to someone on high pay. The reverse is true of rate reductions, there the more you earn the more impact they have.
Under Democratic Left's plan, £107 of weekly income will be exempted from tax for a single earner and £200 for a married worker. This is only very marginally different from Labour's proposals of £111 of weekly income for single workers and £200 for married workers.
After raising taxfree allowances DL plans to spend the bulk of the money on raising the standard rate band from £9,900 to £11,250 and cutting the tax rate from 26 per cent to 25 per cent. This is substantially less than Labour's plan of raising the standard band to £14,200.
One significant difference among the Government parties is their commitment on the health and employment levies, which take 2.25 per cent off all workers' incomes above £197 a week. Fine Gael has proposed abolishing the levies for all workers on less than £17,000, in other words raising the threshold to almost £327 a week. However, DL is proposing an allowance. It maintains that this would remove the inequities which can lead to poverty traps.
Under the threshold system, once a worker earns even £1 over the limit the whole of the income becomes subject to the tax. An allowance, on the other hand, would ensure that the tax was paid only on the excess. This would provide a boost for people on lower incomes of over £10,000.
THE problem with this system is that it is very expensive to implement for relatively little monetary reward. This is one of the reasons Labour choice to focus more on increasing the standard band to a greater extent. That can provide a maximum gain of £14.75 a week, whereas the introduction of a £207 a week allowance for the thresholds will provide a flatrate benefit of £4.66 a week to all workers earning over £200 a week.
DL's proposals on childcare costs are also very similar to Labour's. Both parties are focusing on increasing child benefit, which they say is the most equitable way of reaching all families. DL says it will double child benefit while Labour has promised to double the payments in August and December, when costs are often highest.
Fianna Fail, on the other hand, is proposing a tax break for childcare costs and for stay at home mothers.