Davy Stockbrokers have drawn parallels between the Sinn Féin party and the “New Labour” ideology practiced under Tony Blair, after hosting a range of discussions with key party representatives and financial backers in London. This suggests a shift from a left-leaning stance akin to Jeremy Corbyn’s Labour to more moderate political strategies, a credible observation based on their policy advancements in recent years. Notably, the alterations proposed by Sinn Féin could deliver substantial reform, particularly around income tax.
Sinn Féin has proposed taxation policies similar to the Robin Hood principle, seeking to alleviate the financial burden on the majority, funded by a minority of higher-income individuals. The specifics of these strategies deserve consideration.
At the heart of their proposals are the ‘giveaways’. The idea of reducing the financial burden on lower and middle-income groups, though appealing, is financially and technically challenging due to the high volume of people in these categories and the already minimal income tax charged in Ireland. As such, Sinn Féin has focused on reliefs for the Universal Social Charge (USC), an area where significant burden still exists for lower earners, with reductions planned despite recent improvements.
The financial resources available for tax reductions and providing households with additional income are limited. Agreeing on these changes before the upcoming elections will be challenging.
In Sinn Féin’s alternative financial blueprint for this year, they expressed a desire to annihilate the USC completely on incomes of approximately €12,000 and below (currently attracting a 0.5 per cent levy), decrease the secondary rate from 2 per cent to 1 per cent and elevate the threshold for the main USC rate of 4 per cent. An increase in tax credits was also proposed, with the potential to provide an extra €100 for workers and the self-employed.
The net impact of these proposals was estimated to be about €375 annually for those with sufficient income to gain fully, which symbolises the majority of employed individuals. However, the overall cost of around €766 million is considerable.
The gradual removal of primary income tax credits is a complex matter. While it hasn’t received much attention, it could have profound financial implications for those affected.
The Sinn Féin’s financial plan aims to increase taxes for those who earn over €100,000, potentially generating an excess of €700 million for the Irish Treasury. This newfound wealth would mainly be used to fund lower-income concessions. However, due to modest population size within this high-earning bracket, substantially steep tax increments are required to generate the intended income. Although these high earners would benefit from the changes to the Universal Social Charge (USC), such benefits would quickly be negated by increases in other areas.
In the context of Sinn Féin’s income tax strategy, many have focused on the proposed levy for high earners. The present proposal – a 3% levy on the portion of income over €140,000 – is a significant deviation from their proposal in 2017 wherein they suggested a 7% levy on income above €100,000, considering wage inflations.
Sinn Féin’s policy has another aspect that becomes active when earnings exceed €100,000. This involves the gradual elimination of the main income tax credits. While this is somewhat complex and thus attracts less attention, it holds significant impact for those affected. For those in the high-earning bracket, it holds more relevance than the proposed levy.
Whether they are PAYE or self-employed, most working individuals are eligible for two primary income tax credits of €1,875 each, totalling €3,750. According to Sinn Féin’s plan, this benefit would be gradually withdrawn within the income range of €101,000 to €140,000.
Therefore, for every extra €1,000 earned over €100,000, the credit’s value would drop by 2.5%. This is a similar tactic employed by the UK, whereby credits are phased out on earnings of £100,000 to around £125,000. As part of the Sinn Féin doctrine, it is expected there would be details on how married couples jointly evaluated will have their credits phased out.
However, the Coalition parties are expected to criticise Sinn Féin for their strategy of raising taxes on higher earners, arguing that it undermines inward investment and economic growth.
In essence, tax credits are monetary sums subtracted from your total tax. Hence, with the phasing out of the credit, an individual bringing in €120,000 per annum would find their tax increased by €1,875 annually. Likewise, those with salaries of €140,000 would witness an additional €3,750 to their yearly tax. Furthermore, a 3% surcharge on earnings exceeding €140,000 implies that high-income folks earning, say, €180,000, may face an increase of almost €5,000 annually due to these two provisions. In net terms, considering the reductions in USC rates, the additional income tax and USC would approximate €4,650.
Additionally, there are other proposed tax adjustments that would vary depending on individual situations. For instance, it has been suggested that local property tax be phased out, with a 20% reduction in this charge proposed for 2024. Moreover, there are proposals centred on aiding lower earners and the financially “squeezed middle” via actions like decreased childcare expenditure and help for renters, who are offered a tax credit equal to a month’s rent. Furthermore, revenue-raising policies are also targeting high-income individuals, such as a 3% increase in capital acquisitions tax, applicable to inheritances and gifts, up to 36%, and a yearly charge of €400 on secondary residences.
Assessing tax policy encompasses several aspects: fairness, simplicity, and efficiency. Sustainability is also a crucial factor and has become a fundamental discussion in Ireland. In terms of fairness, the contention boils down to subjective judgement. Conventionally, it’s agreed upon that wealthier individuals should shoulder a greater tax burden, which is the scenario in Ireland, where tax “units” (married couples assessed jointly, single-income couples, and single individuals) who earn over €100,000 currently contribute nearly 2/3 of every euro in income tax and USC.
Compared to international standards, Ireland’s income tax system is progressive, hitting high-income individuals harder while favouring lower earners. With regards to the issue of fairness, there’s no definitive answer as it is prominently subjective and a primary matter in a country’s politics.
The Sinn Féin strategy has made waves with its aims to reduce the tax pressure on lower-income earners. The intention of the initial implementation of the USC was to ensure a broader tax base by having even the lowest earners contribute a small amount. Nevertheless, this principle has been gradually diminished through the policy amendments of several governments, including the present one. The Commission on Tax and Welfare has proposed that this current trend should not be intensified in order to prevent further constriction of the income tax base.
Taxes also influence individual decision-making processes, as traditional economic theories suggest that taxes on elements like labour tend to be more burdensome than those on fixed assets such as property. An upward adjustment of income tax for wealthier individuals could affect their behaviour, potentially influencing the choices of mobile individuals, working hours, and impacting inward investment. Sinn Féin plans to raise employers’ PRSI on earnings exceeding €100,000, which would make it dearer to maintain the net income of higher-earning staff.
Significant expenditure is involved in returning money to lower and middle-income earner due to the sheer number of people who fall into these categories. Therefore, the Commission on Tax and Welfare proposed that a heavier tax imposition on the wealthier segment of society should be executed through increased capital taxes that capture wealth, and via a hike in local property taxes rather than by raising income taxes, thereby sidestepping the distorting effect of further income tax rises.
While Sinn Féin has expressed a willingness to increase capital taxes and consider a wealth tax commission, previous work from the Department of Finance and the commission has concluded that such measures would not likely bring in sufficient tax revenues to justify the effort. The party has also stated its aim to gradually do away with local property taxes, even though family homes represent the main wealth source for Irish residents.
As the general election looms, the shape of the debate is becoming clearer. The Coalition parties are likely to argue that Sinn Féin’s plan to increase tax on higher-earning individuals could harm inward investment and economic growth. The primary opposing party is expected to argue that their strategy offers a more equitable solution catered towards supporting lower and middle-income earners who are in greatest need. It will be fascinating to watch the unveiling of the various costed plans put forth by different parties and to see where potential tax increments might be suggested alongside promised relief offerings.
It remains uncertain how far all involved groups will consider the guidance offered by the Fiscal Council, the Commission on Tax and Welfare, and practically every prediction entity. They’ve all warned of the necessity for a future increase in total taxes, instead of a decrease, to support an aging society and the financial impact of climate changes. A sharp increase in corporate tax has so far prevented Irish political figures from addressing this issue, but it’s highly probable that this dilemma will require dealing with during the tenure of the upcoming administration.