Nat O'Connor: It was reported in the Irish Independent that "Under new figures released by Mr Noonan's department, a 0.5pc decrease in the top rate of income tax from 41pc would cost €82m in 2015 and €117m in a full year, and would benefit 700,000 workers. A 1pc cut would cost €164m in the first year and €234m in a full year."
The figure of 700,000 is unlikely to be correct. According to Minister Noonan's response to a Parliamentary Question, only 17 per cent of income tax payers pay anything at all at the higher rate. Table IDS1 in this Revenue report, shows there were 2 million income tax payers in 2011, representing 2.4 million adult income tax payers. 17 per cent of them represents 340,000 tax units or 408,000 adults. Plausibly more of the relevant tax payers are couples, which brings the beneficiaries up to as much as 480,000 - but not 700,000.
(The calculation: if all 340,000 were couples, then 680,000 adults would benefit but that's not possible because we know from the same Revenue data that more than 200,000 single people pay the 41% tax, as well as some one earner households, so the logical maximum number of workers who could benefit from a cut to the higher rate is 200,000 singles and 140,000 couples = 480,000 adult workers).
On the other hand, although one in six of Ireland's 2 million tax units would benefit from a cut to the 41% rate, five in six (83% or 1.67 million) will not benefit from cuts to the higher rate of income tax - representing on average nearly 2 million adults.
Out of Ireland's 3.6 million adults, even if 700,000 did benefit, they would do so to the exclusion of 2.9 million other adults, including 1.2 million other workers (out of Ireland's 1.9 million people in employment).
There is no good way of looking at these figures. Tax cuts to the higher rate, even by 1/2 a percentage point on the rate, are a tax cut for higher earners. Fine Gael may want to do this, and they may arguably even have a mandate to do so, but they should give up the pretense that this will benefit low or middle income households.
Part of Minister Noonan's response in the Dáil was a claim that "an increase in the standard rate band could ensure that those workers that are on the brink of paying the higher rate of income tax currently, could benefit from a pay increase, without becoming subject to the higher rate of income tax going forward". What this boils down to is that if the 17 per cent paying the 41% ever grows to 18 per cent or 19 per cent, then those extra higher paid workers will benefit too.
Of course, over five or ten years, if there was ever significant wage growth across the economy, one might expect a Government to widen the income tax bands. However, not in the context of recovering from a massive recession and collapse in public finances, with high long-term unemployment becoming structural, public services under severe strain and social welfare incomes frozen for nearly a decade. Tax revenue is needed to tackle inequality, not to mention the looming Fiscal Compact requirements to spend an additional €5 billion or more per annum (from 2019) to pay down the national debt. And it is all too likely that when 2019 comes around, money will be found for the debt through more cuts, not more taxes.
None of this is to say that everyone paying the 41% rate is living a life of luxury. Many may have large mortgages or other debt that are weighing them down. But there are more homeowners without major mortgages than with, and if the Government want to target money at reducing personal debt, it should take on the banks directly not use the inefficient mechanism of giving money to those who already enjoy the highest incomes.
Nat O’Connor is a member of the Institute for Research in Social Sciences (IRiSS) and a Lecturer of Public Policy and Public Management in the School of Criminology, Politics and Social Policy at Ulster University.
Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.
Nat holds a PhD in Political Science from Trinity College Dublin (2008) and an MA in Political Science and Social Policy form the University of Dundee (1998). Nat’s primary research interest is in how research-informed public policy can achieve social justice and human wellbeing. Nat’s work has focused on economic inequality, housing and homelessness, democratic accountability and public policy analysis. His PhD focused on public access to information as part of democratic policy making.