Fianna Fáil finance spokesman Michael McGrath adopted the mantle of responsibility as he pledged to cut the universal social charge and capital gains tax if in government. A difficult election looms for the party but he insisted it had learned its lesson from the crash.
Although the tax plan centres on cuts, McGrath rejected the idea the proposal represented Fianna Fáil’s opening bid in an election auction. Whether voters buy that is another matter.
The push to scrap the lowest USC rate next year and halve the second-lowest rate is clear. Still, details were absent. Fianna Fáil would scrap USC on earnings below €80,000 in five years, but wouldn’t say whether income bands would be index-linked. Tax is part of a wider plan but other elements are awaited.
Space for promises
Two points are notable. First, McGrath accepts Department of Finance deficit-cutting targets and its assessment of available “fiscal space” for new spending and tax cuts. Thus he would not bring the State off the present fiscal course. This leaves room for some promises, but not a huge amount.
Second, he insists Fianna Fáil is committed to new fiscal rules. These aim to prevent the excesses which bedevilled the party in power. McGrath’s specific commitments were for 2017. The 1 per cent USC rate on income up to €12,012 would be scrapped and the 3 per cent rate on the next €6,600 would drop to 1.5 per cent. Total full-year cost: €459 million.
“As economic circumstances permit in the following years of the next term of the government, we would abolish the third rate of USC, which as you know is now a 5.5 per cent rate covering the next €51,000 or so of income. Also, as resources will allow, the final rate of 8 per cent would be reduced to 5.5 per cent.” While he would raise the income threshold at which the 8 per cent rate applies to €80,000 from €70,000, he would not say when. Scope would emerge in the second half of the government term.
Prudent and cautious
All that would cost €3 billion in a full year, he said. This was a “prudent and cautious” amount to return to workers, given €8.5 billion of “fiscal space” over five years.
“Fine Gael are going a little bit further promising at least a €4 billion cut in terms of the USC.” While the non-indexation of USC bands would provide another €2 billion in fiscal space, he would not say what he planned to do.
Fianna Fáil would set aside corporate tax revenues above the €6.6 billion foreseen this year for a “rainy-day fund” for use in a downturn if unemployment rose by one percentage point. The party would apply a 10 per cent capital gains tax rate for entrepreneurs on the first €15 million of gains, extending the €1 million relief threshold by €14 million and halving the 20 per cent rate on such gains. Full-year cost: €74 million.
It wants to cut the main capital gains tax rate to 25 per cent from 33 per cent at a full-year cost of €168 million. But the focus is on USC, the tax introduced by Fianna Fáil itself at the height of the crisis.
