Labour has called for the introduction of tax credits in Wednesday's Budget and has recommended a series of measures which would reduce the top rate of personal income tax from 46 per cent to 42 per cent. It has also urged the removal of the ceiling on PRSI and for Capital Gains Tax (CGT) to be increased again.
Unveiling the party's Budget priorities yesterday, Labour's finance spokesman, Mr Derek McDowell, said the Government had a unique opportunity to address a host of issues, including the poverty trap and hospital waiting lists.
He said that most of the benefit should be targeted at those on low to average incomes. Labour's submission says the tax burden should be eased, especially for single people on average income who pay tax at the high rate (46 per cent). Currently, a single person reaches the 46 per cent rate at £13,950, whereas a married couple with only one spouse working can earn £27,100.
Mr McDowell said tax credits should be introduced. The main personal allowances would be converted into a credit at the standard rate. An additional £400 million in a full year would also be spent on increasing the tax credit. This would give a tax credit of approximately £1,450 for a single person and £2,900 for a married couple.
Mr McDowell said this would be a far more equitable system, which would benefit people at both the higher and standard rates. To ensure that people in certain categories, such as widows, lone parents and those on higher rates, do not lose out, he said it would be necessary to raise existing allowances, such as PAYE, the widowed allowances and several others. Labour believes these measures would reduce the tax take from almost all standard rate taxpayers by £838 per annum or approximately £17 per week. A married taxpayer would be £34 per week better off. Mr McDowell said that removing the PRSI ceiling on £25,000 of earnings would save £200 million which, with an additional cost of £60 million, could then be used to reduce the top tax rate from 46 per cent to 42 per cent. Labour also called for the aged allowance to be increased by £3,000 for a single person or £6,000 for a married couple. This would apply to pension income only. Mr McDowell said that many people on small pensions resented having to pay tax on them and this would help to deal with the problem. Last year, Finance Minister Mr McCreevy reduced CGT from 40 per cent to 20 per cent, a move which took many by surprise. It has been mooted that this tax will be increased to 30 per cent on the sale of property which had been bought for investment.
Mr McDowell said CGT should definitely be increased again. He said he could not understand why it had been reduced in the first place as it had not encouraged the freeing up of land or property as Mr McCreevy had claimed it would when introducing the measure.
The Labour finance spokesman also said there are currently three rates of corporation tax - the standard rate of 32 per cent, the lower rate of 25 per cent and the special rate of 10 per cent - which the Government is committed to unifying at 12.5 per cent within five years. However, according to Mr McDowell, it is mostly the banks and some supermarket groups who pay corporation tax at the standard rate, whereas more than 90 per cent of businesses pay tax at the 25 per cent rate.
"Rather than reducing the higher rate, the Government should reduce the lower (25 per cent) rate and raise the threshold from £50,000 to £250,000," he said. "In effect, this would postpone the benefits to big earners, such as the banks, until the last minute." This measure would cost £70 million in a full year.
If the Government reduces the top rate by 5 per cent, as expected, it will cost £158 million and will limit the scope for income tax cuts," Mr McDowell warned.
Labour also calls for investment in childcare, which it says is more necessary than ever because of labour shortages in certain areas of the employment market. This in turn has created a need for greater participation by women in the labour force, especially in the services sector, it says.
The party urges a "significant investment" in State-funded childcare in disadvantaged areas and calls for tax incentives to encourage the private sector to invest in childcare facilities.
