Should there be a cut in the 52% marginal tax rate?
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What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk. With Aviva Insurance.
the Justice Minister and Fianna Fáil TD Jim O'Callaghan has called for a cut in the 52% marginal rate of tax calling the rate imprudent demoralising and contrary to the common good. Well I'm joined in the studio by Barra Rowntree Assistant Professor of Economics at Trinity College and Barry Ward Fine Gael TD for Dun Laoghaire and you're both very welcome thank you for being with us. Barra how do you feel about the marginal rate cut proposed?
So I think it's something that the government can choose to do, but it's a very expensive thing to do. So Jim McCallaghan highlighted being over 50% as the key issue for him and that it kicks in very low. That's true. It does kick in relatively low.
What prompted Jim O'Callaghan to propose a cut in the 52% marginal tax rate?
We have a tax system in Ireland where average earners pay actually very low average tax rates. If you take the amount of tax and take that as a share of their salary, it's quite low. But then that marginal rate kicks in. What the marginal rate is, is the bit that you pay on any increase in earnings. So that is... relatively high.
So on over 44,000?
Yeah, exactly. And that kicks in lower than other countries. So it's something the government can do. But if they wanted to, say, reduce that margin rate to 49%, that's going to be 1.5 billion. And that's about a third of the cost of each year of Jim O'Callaghan's department. So I think the question then for politicians is, well, what are you going to cut or where are you going to raise taxes instead? Because this isn't a free decision.
Well, luckily, we have Barry Ward here to answer all of those questions. Where are you going to find the money?
Well, the first thing is about the desirability of it. This has been Fianna Gael policy for a long time, and we have made reductions in terms of income tax in previous budgets, not the last one. But it is really important because as we face into a cost of living crisis, the best way to deal with that is, in fact, to put money back in people's pockets wherever possible. And I will disagree with Barry on this. I don't think we pay low average rates.
What are the economic implications of reducing the marginal tax rate?
In fact, we pay much higher rates of income tax, both at the average income and the higher income across the OECD and across the EU.
Not at average. At higher earnings, yes, but not at average.
At the average wage, and remember, people in Ireland come into the top rate of tax, as Barra says, much earlier than other countries. But if you take the average wage, we are 21% of income here compared to 15.5% across the OECD and 17% across the EU. So we are higher.
Once you add in Social Security contributions, actually, things are not that different. Again, low earners, average earners pay very little. High earners do pay a higher share.
But we are talking about income tax and how much that takes out of people's ability to run their daily budgets. And what I'm saying is all of the criticisms that have been made of the government in recent times in relation to the cost of living, and it is huge and we know people are struggling, the very best way you can deal with that is by putting money back in people's pockets. And that's what Fine Gael has been saying for a very long time and has done whenever it has been possible to do so.
So are you saying to me today now that you want to cut the lower rate as well?
Well, no, primarily the top rate first because the difficult... And in fact, what I would like to do first is change the bands in relation to the top rate of tax because that way you stop hitting the average earner.
How do average earners in Ireland compare in tax rates to other countries?
So you hit the average rate of income in Ireland. You're already into the top rate of tax. You're already paying the top rate of tax. So I'd rather bring that... that band up to adjust to the average income. And in fact, link it to that, if that were possible.
And do you accept that that needs to be paid for?
Yeah, I was just going to say, Barra is right. It's an expensive project, but it's a worthwhile project. And it's not the case that it can't be done. And remember, we've seen from past experience in this economy and in others, when you put money into people's pockets, it actually can end up generating money as well for the economy in other ways.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:01–0:44
2
What prompted Jim O'Callaghan to propose a cut in the 52% marginal tax rate?
0:44–1:45
3
What are the economic implications of reducing the marginal tax rate?
1:45–2:48
4
How do average earners in Ireland compare in tax rates to other countries?
2:48–4:13
5
What are the potential costs of reducing the marginal tax rate to 49%?
4:13–4:57
6
What arguments are made for and against the proposed tax cut?
4:57–13:39
Speakers
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