The 1% tax promised by the Progressive Democrats this weekend is based on unrealistic assumptions about economic growth. I don’t think many voters will actually be wooed by it.
The proposal to cut the top tax rate from 42% to 41% was the only major story to come out of the PDs Conference in Limerick this weekend. It is part of their long-term goal to get the top tax rate down to 40%; which they promised us would be done years ago. They also hope to widen the tax bands so that people only fall into that 40% bracket when you cross the €50,000 level.
It is hard to see the political wisdom of this in the run in to an election when opinion polls have shown that the public are most concerned about the quality of public services. Since we were told recently that we have the lowest personal tax rates in the world, it is hard to see how further cuts is going to light a big fire during the election. reading the fine print, there is a clear commitement to raise the tax bands to reduce the tax on lower income earners as well, but, as far as I can see, no guarantee that people on the minimum wage wil lbe taken out of the tax bracket.
These cuts are based on the projection that the economy will grow by 5% per annum over the next five years, and that inflation will stay down at 2.5%. Both of these are already lost goals – inflation is already up to 3.5% and the national wage agreement will lock that in by giving wage rate increases of 3.5% to 4% over the next 18 months to 2 years. With wages already undermining our competitiveness and oil prices going up, the odds are that the numbers simply won’t add up. Offering tax cuts on the basis of those projections hardly inspires confidence.
The only way that you can have meaningful long term tax cuts is by cutting back the size of the public sector. Privitising Aer Lingus is hardly going to make much of a dent in that – significant public sector cuts means charging full cost for private beds in public hospitals, or re-introducing fees in Third Level Education, which would expose the taxpayers to the harsh reality that those services cost a lot more than we have been willing to pay for them.
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