Chapter 1: What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk with Aviva Insurance.
Chapter 2: What is economic kite-flying and why is it happening now?
Now, economic kite flying has already begun ahead of the budget because IBEC are looking for the government to double index income tax bans and credits in the next budget. But would this have the desired impact in making hiring a bit easier for employers? Barra Rowntree is Assistant Professor of Economics at Trinity College and he joins me now. Good morning, Barra. Good morning.
So what do you think of the double benefit coming here or proposed from IBEC? So they say because it wasn't done last year, you need to do it twice in Budget 2027.
Well, it's certainly the time for kite flying and it seems to be starting earlier each year and then, you know, in the run-up to the budget, this is when all the organisations and the lobby groups get their, they're going to stall out early enough.
And to be fair to Ibex, they have a point here in the sense that every time you don't increase tax bans or tax credits, right, what that effectively amounts to is a stealth tax increase, if you like. It kind of increases the share of your earnings that are taxed at the higher rate if you're above kind of about 40,000 as a single person, 44,000.
And also the kind of tax credits that we get, so what they net off, the amount of tax that you owe, about kind of 17,000 odd thousand for most individuals working, you can earn without paying any income tax. That kind of becomes worth less in real terms. So again, I bet you have a point in that it wasn't done last year.
And so if the government want to kind of keep that ticking over, if they want to kind of avoid these kind of stealth tax increases, they'd need to do it twice. But there's two things kind of related to that. One is that, again, we talked about this a couple of weeks ago, it's quite expensive, right?
So for kind of a 1% indexation, you're talking about maybe 400, 500 million for the various tax credits that exist. And then for the bands on top of that, you're talking about...
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Chapter 3: How does double-indexing income tax bands affect hiring?
a couple of 100 million for every, about 265 million for every 1,000 euro increase. So, you know, doing that.
Yeah, I beg to say, actually, I think it's the Irish Times who have made this assessment of the proposal on double indexing, that it would cost 688 million in a full year. But that's not all they want to do because they're talking about an increase in tax credits as well, which would be another 240 million. So we're up at a billion now.
Yeah, and you can see how this gets quite expensive very quickly, right? But again, I suppose important context is the reason that they didn't go up last year is because the government decided instead to cut VAT for hospitality, right? And that was, again, actually not a dissimilar figure from what you're talking about, about 700, 800 million.
And so, again, the government could choose to do that, but what that means they're going to have to do is do less elsewhere. They're going to have to spend less money elsewhere. We're already seeing that departments are struggling to keep to the amount that they were budgeted to.
So we're already seeing kind of particular health and education in the department exceed what was in the budget for quite big spending increases already, and they've gone above that. And there is, you know, we just had a by-elections where there was a huge number of demands for the government should be doing more. And so,
Again, if they want to do this, it's something that's kind of understandable. It does mean that for people who are in work, people with employment income, the tax burden has gone up on them.
But it means that you have to not do something else or you have to, and this is no party wants to do this and no party wants to talk about it, but you have to raise taxes from elsewhere or not cut them at the very least.
And does it make it cheaper to hire people? Because that's what IBEC is telling us. That's the general thrust of their argument here, that it is really expensive to hire workers.
So, at the margin, it matters a little bit. I don't think it matters maybe as much as it's being made out.
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Chapter 4: What are the implications of not increasing tax bands and credits?
I don't think we're going to see, you know, a big boost in ā if the government did this, I don't think it's true to say that suddenly a bunch of companies who weren't going to hire people would hire them anyway, right?
You're talking about very ā but, you know, over time, if you don't ā I think probably what Ibex are more concerned about is that if you get this kind of general drag over time whereby ā the tax burden, income tax burden creeps up gradually over time, then that does make it a lot harder.
And it's also a lot harder to address, I suppose, if, you know, if the government keeps having years when they don't index these tax thresholds.
I suppose, Barra, the key to this for the employers is that if you reduce the taxes, you might negate calls for pay increases from workers and that helps them as employers. Yeah, sure.
Absolutely. So it is likely to help a little bit. But again, if you're talking about what's going to be the value to the employee here of maybe for even a very well-paid employee, kind of a couple of hundred euro in the year, I think it's just very unlikely to see that somehow that would unleash a bunch of hiring. So it does make a difference.
And there is a kind of a concern there about in the longer run, if you keep letting these thresholds kind of stay where they are in cash terms, you effectively are increasing the tax burden on all workers, not, you know, who pay income tax. So those above kind of about 17,000 And so that is something to be concerned about.
But what IPEC also highlighted and what was really interesting was the kind of essentially the gap between what American companies would pay in tax if they set up a company in America and if they set it up here has closed. And so they were flagging, I think, quite concerningly.
that we're not seeing as much FDI investment in the pipeline, and that that, they're saying, is being very much driven, or the companies are saying to them, is being very much driven by the tax changes that have taken place in the US over the last few years.
Unfunded tax changes as well by Donald Trump, but ones which have made it much more attractive for American companies to invest in America rather than in Ireland. And so that is something to be concerned about, and it's something that Ireland has benefited immensely from over the last 20, 30 years,
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