Paul Cullen and Harry Magee on Fine Gael and Labour economic proposals

The Irish Times – Saturday, December 4, 2010
Potential coalition parties differ on tax, cuts and public sector
FINE GAEL and Labour’s budgetary proposals for 2011 have revealed marked differences between the two potential coalition partners in their approaches to income tax, public sector numbers and the size of the adjustment.
Both parties published their pre-budget documents yesterday.

Fine Gael has agreed with the Government that €6 billion will be required in deficit reductions next year. By contrast, Labour argued in its proposal that €4.5 billion is the maximum reduction that could be tolerated in 2011, though it agreed with the Government and Fine Gael that a global adjustment of €15 billion is required by 2014.
However, unlike Fine Gael it did not publish proposals covering the term of the four-year plan.
The widest divergence in approach is in relation to income tax. Fine Gael wants the standard and top rate of income tax to remain at 20 and 41 per cent, and minimal adjustments to earnings for middle income earners.
Labour proposed a new tax rate of 48 per cent on joint incomes over €200,000 and single incomes over €100,000. In all, the party proposes some €2.5 billion of its adjustment will come by means of new taxes.
Fine Gael wants spending cuts to account for three-quarters of the savings to be achieved in 2011, with the remainder to be achieved through taxation. Labour proposes that taxation and spending cuts account for an equal proportion of savings.
The two parties also differ sharply on public sector spending. Fine Gael wants a reduction in public sector staff numbers of 30,000 in the next four years, some 18,000 more than the Government.
Labour has said it will accept the proposal in the four-year plan to reduce pay-related costs by €400 million in 2011 and also favours a voluntary redundancy plan. It also claims it can save some €1 billion in non-pay efficiencies next year.
Minister for Tourism, Culture and Sport Mary Hanafin said the plans presented by the two parties were polar opposites in their approaches to income tax. “Labour has not given us a four-year plan as they say the country is banjaxed. I do not think that augurs well,” she said.
The two parties broadly agree on several key aspects, including a cap on public sector salaries (of between €190,000 and €200,000); an increase in carbon tax and Dirt taxes; an increase to €300 in the second-home tax; the reversal of the decision to lower the minimum wage by €1; and the scrapping of the €10 travel tax. They also agree that tax bands and credits need adjustment.
Both parties also adopt key elements of the four-year plan, namely the €1.5 billion cut in capital spending and the basic public service payroll proposals for 2011.
Fine Gael leader Enda Kenny said that in addition to reducing the deficit by €15 billion, his party’s proposals would create 100,000 jobs.
Labour leader Eamon Gilmore said the Government’s plan to frontload €6 billion in cuts would inflict another year of economic stagnation.