Alternatives to austerity

ICTU’s plan for growth and jobs

Nevin Economic Research Institute

ETUC’s ‘Social Compact for Europe’

Budget can avoid spending cuts and still meet targets

Further spending cuts in health, education and social welfare could be avoided if the Government introduces “small increases” in effective tax rates for higher income households in the forthcoming budget. That’s according to the trade union-backed Nevin Economic Research Institute (NERI), which has set out an alternative to austerity that can still meet deficit targets by the 2015 troika deadline.

NERI defines “higher income” households as those that collectively earn over €109,000 a year, including employers’ PRSI and pension contributions – the top 10% of households by earnings.

Even within this group, it identifies scope for progressive tax changes so that the very highest income households bear the biggest tax increases. NERI’s latest Quarterly Economic Observer, published on 18th September, quotes Revenue figures that show 22,000 individuals or couples earn over €200,000 a year and 3,300 earn over €500,000.

Senior NERI researcher Dr Micheál Collins said: “There are choices open to Government and it is possible to pursue a jobs-friendly, growth-friendly and equality-friendly fiscal adjustment.”

NERI says tax breaks and allowances see the highest earning households pay about 27% of their income in tax on average. An average 1.5% increase in this could raise an additional €400 million in 2014, plus €200 million in 2015, without changing tax rates or bands. This could be done by:

  • Increasing the minimum effective tax rates currently allowed under the ‘high earners restriction’
  • Increasing the 30% target effective tax rate for higher earners, and
  • Reforming the structure and availability of tax breaks that are “predominantly availed of by high earners.”

The alternative Budget strategy also calls for:

  • No further cuts in day-to-day public spending
  • The proceeds of the promissory note deal to be used to reduce the budgetary adjustment by €1 billion in 2014 and 2015, and
  • A jobs-boosting stimulus of €4.5 billion over the next two years, which NERI says can be done without additional exchequer spending.

Research by the Institute informed the Irish Congress of Trade Unions’ pre-Budget submission which was launched last month.

Earlier this year NERI estimated that its budget proposals could save 75,000 jobs over two years.