…or The Budget Thread part II, I guess (after yesterday’s part I). I always think it’s a little unfair to knock people, unless you have some alternatives available. So, below are three simple measures which I’ve tried to cost using Government information, which I feel could have replaced some of the ludicrous measures introduced the other day.
Alternative ideas:
- Restore upper PAYE tax rate to 42%, and introduce a third, upper tax rate of 45% for earnings in excess of 100K. To be honest, our tax rates are far too low nowadays, but we don’t particularly want to try and tax our way out of a recession (like, for example, implementing a 1% ‘levy’ across the board!). This would have been a much more equitable way of increasing the tax burden on citizens without hitting those already at risk of poverty. Now, in Budget 2007, the Government cut the upper tax rate from 42% to 41% with an estimated net cost of €186Mn for a full tax year. With a 1% increase on the existing upper limit, and this proposed 4% increase on a new upper limit, I would estimate a minimum of 3 times this amount as full-year income. So, let’s estimate €550Mn.
- Abolish the PRSI ceiling. This to me was the easiest and most obvious way to increase tax revenue in a relatively progressive manner. And so many commentators were predicting it, that I don’t think there would have been any considerable outcry. Now, estimating the revenue potential of this one is considerably more tricky. We know that in Budget 2006, the Department of Finance estimated that raising the ceiling by €2,420 brought about a projected yield of €25Mn (we know from the same paper that this group has considered the abolition of the PRSI ceiling on numerous occasions without any progress). Sadly, for Budget 2009, there was no such estimate made that I can locate. Nevertheless, we know that the PRSI ceiling has been raised by €1,300, and we can only assume that this will lead to a take of €10-15Mn (possibly more, but lets be conservative). Extrapolating out at a similar rate to the benefits acheived from the 2006 measure, I would estimate that abolition of the PRSI ceiling would yield a net intake of at the very least €500Mn.
- Payment pause on the National Pension Reserve Fund. The Book of Estimates puts the 2009 expenditure on this item at €1.6Bn. I would have paused payments to this fund (which will be subject to extremely risky market trading conditions anyway) for a 12-18 month period, netting a minimum of €1.5Bn.
There we go – three measures, yielding €2.5Bn, at extremely conservative estimates. That’s already enough to abolish the stupid 1% levy, and a number of the other areas that further promote inequality…..
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