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May 2008 Archives

Next National Wage Agreement

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Dr X's call for a pay freeze (4th May7 2008) is unlikely to secure much support in the talks on a new national wage agreement on account of our high inflation etc. However, here are three proposals which taken together could enhance national competitiveness, protect living standards, claw back some excesses of the Celtic Tiger, improve equity within society and generate additional funds for the Exchequer:

  1. Wage increases under the next wage agreement should be applied on a sliding scale e.g. 3% p.a. on the first €30,000, 2% on the next thirty and 1% on the balance. As wage increases are mainly intended to compensate for basic cost increases, there is no case for automatically offering the same proportional increases to those already enjoying high incomes. 

  2. Either introduce an additional higher tax rate (say 45%) for those earning over, say, €100,000 or ensure that those on the 41% rate actually pay tax at that rate on their incremental earnings by scaling back allowances for "top-hat" pensions, investments etc. It is anomalous that someone earning €60,000 a year pays tax at 41% while a person earning five times more can pay tax at a much lower effective rate.

  3. Lower the standard VAT rate to, say, 19%. This would reduce the cost of living and help redress the imbalance between low direct taxes (which benefit the better off) and indirect taxes which fall most heavily on the less well off.

Figures are illustrative but basic financial modelling would identify the ideal combination to meet all the aforementioned objectives which, presumably, are reasonable and desirable.

Lead letter published in the Sunday Business Post on 11th May 2008.

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