Fianna Fáil has said that plans for income tax reductions in Budget 2018, flagged earlier this week by Taoiseach Leo Varadkar, should not go ahead and warned Fine Gael that it must stick by the confidence and supply agreement to reduce the USC.
Both the Fianna Fáil leader Micheál Martin and finance spokesman Michael McGrath said tax cuts in the budget should be targeted at USC on lower income earners, with both men pointing out that this is spelt out in the agreement between the two parties.
The Government needs Fianna Fáil’s agreement to abstain if it is to pass budget measures in the Dáil in three weeks’ time. Failure to reach consensus would mean the collapse of the Government and a general election.
Fine Gael has signalled in recent weeks that it plans to increase the threshold at which taxpayers pay the higher rate of income tax, thus reducing the tax paid by many middle-income workers. The Taoiseach made clear in his interview with the Irish Times earlier this week that the priority for tax cuts was workers on middle incomes.
Yesterday, a Government spokesman said that “everything is on the table for consideration” in advance of the budget.
He said there was “no intention to revisit the confidence and supply agreement with Fianna Fáil”, but added that the budget would be the subject of discussions in the coming weeks.
However, Fianna Fáil was adamant that any departure from the USC cuts already agreed would represent a breach of the confidence and supply agreement between the parties and threaten its support for the Government.
“Perhaps this is all part of some game,” Mr McGrath told The Irish Times. “But the agreement couldn’t be clearer. There must be cuts to the USC.”
A senior Fianna Fáil source added: “There must be reductions in the USC. It’s non-negotiable. The confidence and supply agreement requires it.”
Mr McGrath added that it would not be possible to introduce both USC cuts and raise the income tax thresholds in the budget, saying the resources were not available to the Government on its own projections.
New resources
Fianna Fáil fears the Government will repeat a last-minute expansion of the size of the budget giveaway which involved an extra €300 million in tax cuts and spending increases last year. The party has sought – and received, it says – assurances that it will be consulted on how any new resources are deployed in the budget this year.
The Government spokesman confirmed that a series of meetings are planned between Minister for Finance Paschal Donohoe and Fianna Fáil frontbenchers in the coming days. However, senior Fianna Fáil sources have long indicated their intention to drive a harder bargain with the Government on this year’s budget.
On Tuesday, Mr Martin said that the Government could not afford both USC cuts and income tax reductions if it wished to provide additional resources for housing and health.
“I don’t think you can do both,” he said.
Meanwhile, economic projections presented to the Cabinet by Mr Donohoe at its meeting yesterday confirmed earlier forecasts that strong growth in the Irish economy will continue next year.
The updated forecasts, compiled by the Department of Finance, said that the economy would grow by about 4.5 per cent this year and about 3.5 per cent this year, Mr Donohoe told his colleagues.
The broader economic outlook is similarly optimistic, with stronger domestic demand expected to offset the impact of the appreciation of the euro in the external sector.
