Recently, Davy stockbrokers, following a succession of conferences in London with Sinn Féin party members and investors, likened the party more to Tony Blair’s centrist “New Labour” than to the more far-left Labour of Jeremy Corbyn. The central idea being that Sinn Féin is steadily veering towards the centre, a logic that seems plausible given the changes announced in recent years. However, Sinn Féin’s strategies could still imply substantial shifts, particularly concerning income tax, which has been a topic of interest.
The so-called Robin Hood policies of Sinn Féin political, targeting wealth redistribution, are strategic as they appeal to a large number of people whilst imposing a penalty on the relatively few higher earners. The specifics of these policies warrant close examination.
1. The giveaways: Providing financial relief to lower and middle-income groups can be a strain on public finances because of their sheer number. The process can also be technically complicated as the tax load on lower-income earners in Ireland is relatively moderate already. Consequently, Sinn Féin has planned its reliefs, concentrating on the Universal Social Charge (USC), which, although has lessened over the years, arises at lower salary levels compared to income tax. The party has accordingly proposed in its alternative budget to abolish the current USC rate of 0.5% on incomes up to €12,000, trim the second rate from 2% to 1%, and hike the threshold for the nominal 4% USC rate. It has also suggested a tax credit boost which would provide approximately €100 to either an employee or a self-employed person.
Securing agreement on a pre-election package that offers tax reductions and household cash remains challenging due to limited scope. Such changes would have yielded around €375 a year for those with high enough earnings to fully benefit – which means most working people (considering the Government’s amendments to the USC for this year, this figure equates to the system in place in 2023). Despite the fact that the anticipated gains in monetary terms are modest, the overall cost stands high at €766 million.
Sinn Féin’s financial plan includes tax hikes for those individuals who earn over €100,000. This could potentially raise over €700 million for the treasury. This increase, however, would need to be sizeable due to the smaller number of individuals in this earnings range. Although these high earners would benefit from alterations to the USC, these benefits would likely be countered by rises in other areas.
With regards to Sinn Féin’s income tax policy, a great deal of attention has been directed towards the planned levy on high earners. It’s significant to note that the current plan — a 3 per cent levy on income over €140,000 — is remarkably less than the 2017 party policy, which proposed a 7 per cent levy on incomes over €100,000.
Considering incomes over €100,000, another aspect of the policy is the gradual elimination of the primary income tax credits. Although complex, this change would have significant financial impact on those affected and would be more relevant to most high earners than the levy.
The majority of working individuals, whether they are PAYE or self-employed, are eligible for two primary income tax credits totalling €3,750. Under Sinn Féin’s proposed plan, the benefits of these credits would be gradually phased out for incomes ranging from €101,000 and €140,000.
For instance, for every €1,000 a single person earns over €100,000, the value of credits will drop by 2.5 per cent. In contrast, the UK implements a similar gradual decrease of credits for incomes between £100,000 and roughly £125,000. It is expected that Sinn Féin will detail how the phase-out of credits will be applied to jointly-assessed married couples, who currently have several options for credit allocation when both parties earn income.
In essence, credits are monetary amounts slashed from your taxation statement. Due to the proposed phase-out of such credits, a person with an annual salary of €120,000 could face a tax increase of €1,875 each year. Moreover, someone earning €140,000 could end up disbursing an excess €3,750 towards taxes. Coupling this with a suggested 3 per cent supplementary charge on income exceeding €140,000, a high earner with an annual salary of, for instance, €180,000 might shell out an approximate excess of €5,000 annually, thanks to these dual measures. When VSU cut rates are put into the equation, the augmented income tax and VSU may amount to around €4,650.
Additionally, the party endorses other modifications in tax policies, the ramifications of which would hinge on individuals’ unique situations. One instance is the proposed gradual elimination of local property tax, with the putative budget for 2024 condoning a 20 per cent reduction in this payment. Other potential plans primarily aim to alleviate financial burdens of lesser earners and those in the “squeezed middle”, through proposed schemes like diminishing childcare expenses and offering assistance to renters by way of a tax credit matching a month’s rent. Moreover, strategies to generate additional revenues target primarily high earners, like imposing a 3 point surge in capital acquisitions tax that pertains to inheritances and gifts to 36 per cent and a yearly €400 levy on secondary residences.
Judging a taxation policy could be multifold – based on equity, simplicity, and effectiveness. Longevity is also pivotal and is in the limelight in Ireland’s conversations. On the matter of equity, judgement is predominantly influenced by values. It’s widely recognised in Ireland, in relation to income tax, the affluent are expected to contribute more. With tax “units” – which could consist of combined income couples, singular income households, and independent individuals – earning beyond €100,000, roughly two-thirds of each euro is owed in income tax and USC. Globally, Ireland’s progressive system levies higher taxing on upper-income households while favouring those with lower earnings. There isn’t a concrete “right” or “wrong” stance on the matter of equity – it’s intrinsically rooted in an individual’s values and a nation’s political discourse.
One noteworthy feature of the Sinn Féin proposal is its choice to lessen the tax strain on those with lower incomes. The original implementation of USC aimed to ensure a broad tax base by requiring even the less affluent to contribute a small amount. However, this approach has been gradually undermined by successive government budgets, including the present one. The Commission on Tax and Welfare advised against further dilution of this concept to prevent the income tax base from becoming overly narrow.
Tax decisions also influence people’s actions. Conventional economic philosophy suggests that taxes applied to areas like labour are more burdensome than those levied on immovable assets such as property. Hiking income tax on wealthier individuals could affect behavioural patterns, potentially impacting workforce mobility, work-hour decisions, and foreign investment. Sinn Féin has proposed raising PRSI for employers on salaries above €100,000, which will result in higher-earning employees being more pricey to maintain, considering their net pay.
The Commission on Tax and Welfare primarily suggested that amplifying taxes on wealthier people should not occur via increased income tax, but rather through higher capital taxes, effectively targeting wealth, and by elevating local property taxes. This methodology circumvents the adverse effects of further income tax augmentation. Sinn Féin has expressed its intentions to escalate capital taxes and to instigate a commission to contemplate a wealth tax. Although past work by the Department of Finance deemed such a tax unlikely to generate sufficient revenue to warrant its implementation, and this view was shared by the commission, Sinn Féin insists on investigating the concept. However, the party does plan to eliminate the local property tax, regardless of the fact that for most Irish people, their family home represents their most substantial asset.
5. The upcoming election debate already hints at specific focal points. The Coalition parties will likely challenge Sinn Féin, suggesting its plan to raise taxes on higher earners may deter foreign investment and impede growth. The leading Opposition party will argue that its proposals are more equitable and designed to aid lower and middle-income earners who are in dire need of it. The anticipated costed plans should reveal where the Coalition parties envisage tax increases and where they propose providing relief.
It is yet to be determined how fully all concerned groups will heed the counsel of the Fiscal Council, the Commission on Tax and Welfare, and virtually all predictive organisations. These entities have consistently warned that overarching tax increases, not decreases, will be necessary in the coming years to cover the expenses associated with an ageing populace and the financial impacts of climate change. The issue has been temporarily avoided in Irish politics due to a substantial increase in corporation tax, but it is anticipated that addressing it could become a reality during the tenure of the upcoming administration.