IBEC, the employer’s lobby group, will urge Michael Noonan to cut income tax and VAT in October’s Budget.
In its traditional pre-Budget submission published today, Ibec says Mr Noonan should take just €200m out of the economy in the Budget or a tenth of the sum promised by the Government to overseas creditors.
“Now is the time to cut income and consumer taxes, boost investment,” Ibec’s Danny McCoy said in the submission. A €200m cut would still allow the Government to bring the deficit to 2.7pc in 2015 and comfortably below the Government’s 3pc target, the lobby group claims.
Ibec wants €300m worth of income tax reductions, a €100m reduction in consumer taxes and the abolition of the pensions levy which is set to take around €700m out of private sector pensions this year if Mr Noonan repeats his raid on pensions.
The Finance Minister should still cut Government spending and introduce water charges, Mr McCoy adds.
“We have an opportunity to put fresh momentum behind Ireland’s recovery. Now is the time to draw a line under the period of painful austerity,” said Ibec’s McCoy who is also a former economist at the Economic and Social Research Institute. “It was necessary, but the economy has entered a new phase. This needs to be reflected in the budget.”
Ibec joins a growing chorus of The Government has won some leeway when it comes to the Budget thanks to better-than-expected tax returns and the re-statement of growth figures which suggest the economy is bigger than previously calculated. The bigger economy, helped in part by the inclusion of criminal acts such as drug dealing and prostitution, mean Mr Noonan can expect to make the troika’s targets. Still, the euro zone remains mired in a period of slow growth and high unemployment and many economists warn that the Chinese economy is slowing much more rapidly than official figures acknowledge.
Back home, Ibec says consumers deserve a break and getting more money back into the economy will boost economic activity and support job creation.
To do this, Ibec wants Mr Noonan to:
• Increase the entry point to the marginal tax rate from €32,800 to €34,800.
• Reduce the marginal tax rate from 52pc to 51pc.
• Reform the universal social charge so self-employed and PAYE workers are treated the same.
• Reverse recent alcohol excise increases.
• Continue the reduced 9pc VAT rate for the hospitality sector.
• Drop the pensions levy as promised in original Budget.
The private-sector pension levy was a “uniquely unfair and unacceptable tax”, Ibec says. “It is not a contribution to the public purse based on ability to pay. It is an expropriation of capital sums saved by workers in the private sector.”