By Ann Marie Foley - 04 October, 2017
A study conducted by SJI, shows that while there should be no net reduction in tax in Budget 2018, the impact of some proposals currently being considered would be what it called “profoundly unfair” because they favour only those with higher incomes.
Social Justice Ireland has called for the rejection of tax proposals which favour the better off and offer little or no relief to the poor.
“Some tax proposals currently being considered by the Government should be rejected because they would give far greater benefit to people earning higher incomes than to lower income employees,” said Dr Seán Healy, Director of Social Justice Ireland (SJI).
A study conducted by SJI, shows that while there should be no net reduction in tax in Budget 2018, the impact of some proposals currently being considered would be what it called “profoundly unfair” because they favour only those with higher incomes. The study, published on Monday (2nd October 2017) a week before Budget 2018, compares the impact of three proposed scenarios costing around the same amount (€196m – €202m) annually:
• an increase in the standard rate band of €1,000 (full year cost €202m) – along the lines of the Fine Gael proposals for Budget 2018;
• 0.5% decrease in the 5% USC rate – that applies to income between €18,772 and €70,044 (full-year cost €196m) – along the lines of the Fianna Fail proposals for Budget 2018;
• increase in the personal tax credit of €85 with equal increases in couple, widowed parents and the single person child carer credit (full-year cost €202m) – along the lines of Social Justice Ireland
The last option is preferred by SJI which rejected the other two options proposed by the two main political parties.
“Both increasing the standard rate band and decreasing the 0.5% USC rate skew the benefits towards those on higher incomes,” said Dr Healy. “In contrast, increasing the personal tax credit spreads the benefits more evenly across all earners.” An €85 increase in the personal tax credit provides the same gain to all taxpayers earning sufficient to pay more than €85 in income taxes, according to SJI. However, below €16,500 for single earners, €24,900 for couples with one earner, €33,000 for couples with two earners, there are no gains as up to these points tax credits absorb all income tax liabilities
The proposal similar to Fine Gael’s to increase the standard rate band provides gains which are skewed towards higher incomes. A single earner on €25,000 gains nothing from this reform and it is only individuals with incomes of €33,800 plus, and couples with two earners with a gross income above €67,600, who gain. The largest benefits flow to those on the highest incomes.
The proposal similar to Fianna Fail’s of reducing the 5% USC band, benefits earners with income between €18,772 and €70,044 and for those within this band the benefit is greater the higher an individual’s income according to SJI. For example an individual on €25,000 gains €31.14 a year while an individual on €100,000 gains more than eight times as much or €256.36 per annum.
SJI favours retention of the Universal Social Charge (USC) as it stands. “The USC is the most progressive of all the different taxes and charges that apply to people’s income. It affects higher earners to a greater extent than those on low pay and, perhaps as importantly, it is impossible to avoid. Government should keep these two facts in mind ahead of Budget 2018,” said Eamon Murphy, Economic and Social Analyst, SJI.
Michelle Murphy, Research and Policy Analyst, SJI, suggested that the best outcome of all would be to spend more on social services and infrastructure rather than on cutting tax. She stated: “Social Justice Ireland is not in favour of any net tax reductions in Budget 2018, or in reductions to the USC. Any available money should be used to improve Ireland’s social services and infrastructure, reduce poverty and social exclusion and increase the number of jobs.”
Separately, Social Justice Ireland’s recent book entitled “Basic Income: Radical Utopia or Practical Solution” has received an award for original work in Irish Fiscal Policy from Ireland’s Foundation for Fiscal Studies, Fiscal.ie. The award was made on Monday 2nd October today as part of the Fiscal.ie announcement of the Miriam Hederman O’Brien Award. Fiscal.ie said the award was being made to Social Justice Ireland “in recognition of your outstanding work”.
The tax report can be found at: https://www.socialjustice.ie/content/publications/policy-briefing-fairness-changing-income-taxes
The award winning publication (edited by Social Justice Ireland Directors, Brigid Reynolds and Seán Healy) is available at: https://www.socialjustice.ie/content/publications/basic-income-radical-utopia-or-practical-solution