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Tax Rate Cut will Bring FF and PDs to Blows
Read more about: Economy, Fianna Fail, Fine Gael, Government, Irish Politics, Labour Party, Progressive Democrats
Irish Times suggests the PDs are lobbying Brian Cowen quite hard for another 2% cut in the top rate of tax from 42% to 40%. Cowen has signalled his own preference for recourse to adjustment of tax bands and increased use of tax credits. If the report is to be believed, Fianna Fail are—correctly—worried about that move being seen as hurting poor and middle income earners in favour of richer tax-payers.
It strikes me that Fianna Fail and the PDs have conflicting interests in this; Fianna Fail need to secure the usual cross-class vote that brings them to power and cannot afford to have the impression of doing favours for specific interests hanging over them so close to an election (the time for that, of course, is after an election).
Meanwhile the PDs have a very strong image of slashing taxes. While this is not exclusively to garner a “rich vote,” it doesn’t hurt in the leafy suburbs of Ranelagh and Donnybrook. McDowell’s PDs would dearly love to go to the country with their image reinforced as a tax-cutting force in government and firmly buttress their right flank from any Fine Gael onslaught—the programme for government did promise the 40% rate. It seems unlikely that a man like Cowen is unaware of the symbolic importance to the PDs of having come out of December’s budget with a clear “result.”
It is also unlikely that he is going to be willing to relinquish the momentum that Fianna Fail has been displaying in recent polls. They are clearly back taking votes from their usual hunting ground: Labour. While Labour’s recent policy on poverty is unlikely to worry FF strategists, the green shoots of an individual Labour identity within the prospective alternative government will certainly get Cowen and the party thinking.
There are numerous economic and political arguments around the cutting of taxes and these are something that the electorate will undoubtedly come to weigh up between December and May. I doubt, however, that Fianna Fail’s—and more particularly Cowen’s—decision will be based on high ideology and far more on the base instinct of winning votes, an instinct which seems certain to bring the coalition into conflict.
Fianna Fail’s hopes for next years election lie on the mobilisation of the usual cross-class vote, one which tax cuts preferred in favour of credits and targeted cuts are likely to alienate in the short term. Meanwhile the PDs are on shaky ground in their key battle with Fine Gael if they return to the country having fought for a 2% cut and lost out. Surely, the argument will go, if you want tax cuts you need to vote for the party which will lead the government not follow it.
Thing is like the opposition love to point out there is a very large precentage of the population paying on the top band of tax. Something over 30%. Considering households as a whole This probably effects alot more households then the leafy suburbs of Donnybrook. And many of these people on 42% are on the very threshold of the tax. Yeara after year they have seen the tax bands expand only for wage inflation to put them back in the higher band. The people in the leafy suburbs are already on high wages. And certainly can afford 42% tax the people who this is aimed at is ass the PD’s like to term the coping classes. The young families with high mortages which 2% will do a hell of a lot for.
I agree and the top rate payers are only going up as long as they ignore the bands but tying the band to inflation and readjusting would be a much bigger move for FF core vote and it seems to be where Cowen wants to head.
Moving the bands will just mean people at the edges will just be paying the top rate again next year. Any most of the top top people get there money via cpaital gains. So this will not effect them as much as people think. They are still going to have their wealth taxed at 20%
Yes but a move to link the bands to inflation or infaltion-proof the bands is surely on cowen’s mind. If he is all about making tax cuts work for those on lower incomes then he has no choice but to link the bands in some way so as to avoid any undue backlash until december. especiall since the investment in other areas couples with SSIA money could send inflation up
There is a vicious circle operating here.
Cowen has identified three main areas for spending: Health: Education & Gardai - plus Infrastructure.
All three are top heavy with administrative wages.
Wages are structured according to the cost of living & become the basis for union demands.
If wages increase at the same rate as the index of inflation, they will always remain within the same tax bracket. In other words, the wage increase is swallowed up by the cost of living & there is no compensating tax forberance.
Cowen seeks to correct this by extending the tax bands & credits.
Even eliminating the political motivation, this makes sense.
Simon points out that 30% of all taxpayers are on the top rate of 42%.
Thereafter, all consumer spending has to be funded out of taxed income. So the effective rate of taxation on the marginal earnings of 30% of taxpayers is significantly higher.
(It would be folly to introduce the cost of housing here, although it is one of the single greatest contributors to inflation in Ireland. It is just too big a subject & needs its own forum.).
If we move on to the estimates for spending, we can see that Cowen will always be chasing his tail.
As the already bloated public sector manpower expands - and the estimates for health & education (plus the Garda Siochana) are set for huge numerical increases — without any compensating reduction in back-office administration — the wage bill is going to gobble up enormous amounts of taxpayers hard-earned money.
The pay-off will be impossible to quantify in economic terms. If the increses were linked to a reduction in, say, overtime, sick leave etc. there could be benefits.
But is this likely?
Benchmarking bonuses have been paid to 100% of public service employees, so one can only assume that these people are all working at maximum efficiency & productivity!
The lowering of the top marginal rate to 40% was part of the FF/PD election manifesto. perhaps it was aspirational, but people will remember.
Infrastructural projects are still many years behind the Dublin motor-car population and there can be no short-term fix.
I have floated concepts for reducing the motor-car population, but the reaction has been a suggestion that a motor-car is the right of every citizen, whether they can afford it or not.
Cheap, efficient public transport is the ultimate solution to city traffic.
One has only to look at the major cities around the world to see how they have coped.
And if the writer who suggested a motor-car as a right were to take a train in London, he would see thousands of the “so called” rich, high earners using the system, daily.
But first one needs a cheap, efficient, punctual system. One that does not have to compete for road space with motor-cars.
One factor that is never mentioned by Cowen is a reduction of spending. There seems to be a presumption that the country cannot function without an increased public workforce.
Nor are the opposition making any sensible suggestions about a strategic elimination of the waste:- of manpower; inept work practices; demarkation of duties; overtime; sick leave; overmanning…
…Nor the reduction in the size of Government itself - possibly the biggest single waste of scarce resources in Ireland.
I have regularly suggested the reduction of the Cabinet to six persons and Dail representation to 1 elected TD per 80,000 (if not 100,000) of population. A Dail of 50-55 deputies.
If the Opposition is to make any impact on the taxpaying electorate, this is the message they want to hear.
VALUE FOR THEIR MONEY; COMPETENCE; EFFICIENCY; ELIMINATION OF WASTE & DUPLICATION.
ACTION - NOT WORDS OR SLOGANS.
Brian Cowen was the man who coined the phrase “If in doubt, leave them out”, so it’s debatable if he’ll be so swayed by the PDs. However I hope he will. With a US slowdown on the way, we need tax-cuts to keeping the Tiger roaring. I would like to see the top-rate cut from 42% to 40%. But I would like to point out to the starter of this thread that the programme for govt qualifies the 40% rate promise with the proviso “if economic circumstances allow”. In that context they would probably argue they had not broken any promises if they fail to do this. With the PDs having made a song and dance about stamp-duty I think they would get a big boost electorally if an adequate adjustment to it comes from the budget.
Any inclination by Cowen to focus on tax-bands only to the exclusion of rates would be very unwise, bearing in mind what happened to the ‘prudent’ Rainbow govt in 1997 on a similar promise.