While today’s Summer Economic Statement is light on detail, it does give a sense of the proposed future fiscal strategy of the current government.
Of most interest is the desire to broaden the tax base and work towards lower marginal tax rates, with a focus on middle income earners.
Interestingly, over the last number of years general tax policy has headed in the opposite direction, with a narrowing of the tax base seeing close to 500,000 taxpayers removed from the tax net since 2012. Today’s statement could indicate a change in this direction, with a broader tax base seeing more people paying tax, albeit at a very low level. A broadening of the tax base was one of the recommendations of the 2009 Commission on Taxation report.
On the downside, there is no reference to a reduction in the top marginal income tax rates of 52% and 55% for the employed and self-employed respectively. These continue to represent a significant disincentive to work as well as being an impediment to attracting further FDI.
At the moment it looks like there is room for circa €200m of further tax cuts in the October Budget, although the possibility of additional cuts is noted in the Statement. The scope for any further tax cuts will depend on both political and economic factors, including the health or otherwise of exchequer receipts over the next couple of months. A continuation of the improved figures witnessed in May and June could provide the room for greater tax relief come October.