June 2008 Archives

Responding to Recession

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Here are three proposals which could help negotiations on a new national wage agreement, claw back some of the excesses of the Celtic Tiger, improve equity within society, generate additional funds for the Exchequer, and enhance national competitiveness:

  1. Apply wage increases under the next agreement on a sliding scale, for example, 3% p.a. on the first €30,000, 2% on the next thirty and 1% on the balance. As wage increases, in the absence of growth, 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 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 inequitable that someone earning €60,000 a year pays tax at 41% while a person earning five times more can pay tax at a lower effective rate.
  3. Drop the standard VAT rate to, say, 18%. 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.

The figures are illustrative but basic analysis would identify the ideal combination to achieve all the aforementioned objectives.

Lead letter published in the Irish Times on 28th June 2008.

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