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Sustaining Prosperity

Fiscal Policy For A Fair Society

The Challenge

Sound economic management is a fundamental requirement of good government. A prosperous economy brings higher levels of income and employment for our people and generates the resources necessary for creating a Fair Society, improving quality of life and laying the foundations for future growth.

While the broad macroeconomic outlook for the Irish economy is positive, there can be no room for complacency.

Although the Irish economy has continued to perform well in recent years, not enough has been done either to sustain and enhance our competitiveness, or to translate the resources that our economy has created into the quality public services that are the hallmark of a Fair Society.

A long list of cost overruns and project delays has accumulated. Unthinkable amounts of money have been wasted at the expense of better infrastructure and better public services through a combination of vanity projects, poor management, and the absence of a vision for what can be achieved The government has failed to modernise the public service to make it the instrument of economic and social progress that it can be. Failure to tackle infrastructure deficits in a timely and efficient manner has undermined Ireland's capacity for sustainable, non-inflationary growth in the longer term.

Although the economy is confronted by a number of challenges, with the right policies, strong growth by the standards of other European countries can and will be sustained. Within the parameters of the Stability and Growth Pact, the resources thus generated must be used effectively to provide for progressive tax reform, better public services and a more sustainable pattern of economic development.

Labour is proud of our contribution to the development of the Celtic Tiger economy. We are committed to putting the needs of hard working families and communities back into the heart of government policy. We do not accept that high inequality is necessary for economic success. Rather we believe that in a modern knowledge driven-economy, there is an essential complementarity between social solidarity and prosperity. Our policies will tackle the deep rooted disadvantage experienced by those left behind by the Celtic Tiger.

Ireland can do better

Labour will inject new ideas, energy and determination into economic policy formation to promote an innovative, enterprise-based, sustainable economy, generating resources which are efficiently and fairly used by individuals, families and government to promote economic well-being, social inclusion and a better quality of life.

What Labour will do

Budgeting for Growth and Stability

Labour will manage the public finances in a manner which promotes economic stability and sustainable non-inflationary growth. Our approach to fiscal policy will be based on fiscal discipline and stability, investment in better public services, higher capital spending, the attainment of better value for money in public spending, and progressive tax reform.

Fiscal Discipline and Stability

Fiscal discipline and stability are essential to maintaining economic growth and higher employment, while also being a formal requirement of EMU membership.

Our approach to fiscal policy in government will be situated in the context of our over-riding commitment to the EU Growth and Stability Pact, to which Ireland is committed as part of our adoption of the euro.This means respecting the requirement that, over the course of an economic cycle, the General Government Balance will, on average, not exceed 1 per cent of GDP.

We will avoid pro-cyclical fiscal policies that increase inflation and reduce long-run competitiveness. There is a requirement to slow growth in day-to-day spending down from the present unsustainable rate towards the rate of growth in the economy.

We will maintain sufficient flexibility in the public finances to prevent a sharper than expected slowdown in growth breaching our EMU commitments, and without the need for cutbacks in public investment and services.

Under this approach, Ireland's national debt will continue to decline significantly as a percentage of national income.

Better Public Services

Labour is committed to high quality public services as an essential element in building a Fair Society.We will deliver substantial improvements to public services through a combination of investment and reform.

We guarantee to implement the following five commitments for change set out by Party Leader Pat Rabbitte:

Planning and building 2300 additional acute in-patient hospital beds within the lifetime of the National Development Plan, the maximum possible number to be completed within the lifetime of the next government
Increasing the number of Community Gardaí to 1500
Providing one year of free pre-school education for every child
Abolition of the means test for carers
Establishing a 'Begin to Buy' scheme to allow people who are working to buy a stake in a home.

These spending commitments represent a modest proportion of the total amount of resources that are likely to be available over the next five years.
Allocation of additional resources for further public service improvements will be determined in the context of annual budgetary planning, subject to our overriding commitment to economic stability and our EMU obligations. The tax and spending commitments given in this manifesto are subject to the over-riding requirement for fiscal stability as expressed by the terms of the Stability and Growth Pact.
We are committed to increasing Ireland's Official Development Assistance (ODA) to meet the UN target of 0.7 per cent of GNP. Accordingly, we will legislate to establish an ODA fund, into which 0.7 per cent of GNP will paid annually (in a manner similar to the payments to the NPRF). In this way, ODA contributions will be accounted for as a charge on the Central Fund.
We will fulfil existing government policy commitments across a range of public services areas, including those set out in the Social Partnership Agreement, Towards 2016. 2 The Fair Society - Labour Manifesto 2007

Higher Capital Spending

In order to address a range of economic and social infrastructural deficits, and to lay the foundations for future growth and prosperity, Ireland will be required to maintain a high level of capital spending over the next decade.

Labour will increase capital spending to the levels set out in the National Development Plan.
At the same time we will introduce a new framework for delivering infrastructure on time and on budget, as set out elsewhere in this manifesto.
We will also invest 1 per cent of GNP in the National Pension Reserve Fund (NPRF) annually over the lifetime of the government.

Better Value for Money

Poor management of public expenditure has diminished confidence in public services as a means of delivering a better quality of life and a more equal society. As a party committed to the concept of high quality public services, Labour has already published detailed proposals for delivering better value for money in our document entitled The Buck Stops Here.

This set out more than forty specific recommendations to improve strategic management of government priorities, enhance Oireachtas scrutiny of spending, modernise the expenditure management capacity of the civil and public service, and set out clear lines of accountability for Ministers and civil servants. These proposals are set out in detail elsewhere in this manifesto in the section entitled 'Reinventing government'

Tax Reform for Economic and Social progress

Over the term of office of the next government, economic growth will generate substantial exchequer resources. In that context, Labour will implement the following progressive tax reforms:

A More Progressive and Family Friendly Income Tax Code

Labour will enhance the incomes of hard working families who have suffered from the "rip off" experience by delivering progressive income tax reform. We will also provide income tax reforms that recognise the work done by carers in the home, and which support the life choices of all families, including parents and other carers, in achieving their own preferred balance between paid work and unpaid care. To achieve these aims, we will introduce the following measures:

A 2-point cut in the standard rate of tax from 20 per cent to 18 per cent.
An increase in personal credits in line with wage growth. This will increase the personal and married credits to €2,000 and €4,000 respectively by 2012. Combined with a cut in the standard rate of tax, the increase in personal tax credits will ensure that no employee earning less than €10.30 per hour (€400 per week assuming a 39 hour week; €20,900 per year) will pay income tax.
An increase in the home-carers' credit to the level of the PAYE credit (to €1,760), with a doubling of the income disregard for eligibility for this credit to €10,160.
Indexation of the standard rate band to wage increases on an annual basis, in a way that provides the same increase for one and two-income families. Wage indexation alone will increase the standard rate band by €6,000 for singles, and will increase the transferable band by €12,000 for one- and two-income families. This will halt the present policy of continually widening the gap between the tax treatment of one-and two-income families.
On top of indexation, we will provide an additional €5,000 increase in the transferable band for one-income and two-income families, to be offset by a cut in the extra standard rate band for the second earner from €25,000 to €20,000.

A Fairer Stamp Duty Regime

It is the role of government to help families buy their homes, not to get in their way. The present stamp duty structure has become inequitable because of the failure of government to adjust tax thresholds as house prices rose, and because of the structure of the tax which applies each progressive rate to the whole house price not just to the excess above the previous threshold. The result is high stamp duty payments on much more modest homes than was originally intended. In government, we will introduce a fairer system of stamp duty on residential properties that helps make housing for all families more affordable.

Specifically, we will:

Raise the zero stamp duty threshold for first time buyers from €317,500 to €450,000 with duty paid only on the excess over this threshold.
Restructure the stamp duty system for other buyers as follows:
No stamp duty up to €100,000 ¦ On the next €350,000 a 5 per cent rate will apply
On the balance a 9 per cent rate will apply
These changes will be a priority for Labour in government and will be introduced as a single measure.

A Tax-Supportive Environment for Employment and Exports

We recognise that a competitive tax regime has been, and will remain, vital in encouraging employment, entrepreneurship, investment and exports. We recognise the need to maintain incentives for work, and to maintain Ireland's attractiveness as a location for mobile investment and skilled labour.

Accordingly we will:

Maintain the existing rates of Corporation Tax.
Maintain the existing rates of Capital Gains Tax.
Restrict growth in charges by state bodies at the rate of inflation. Any requested increases beyond the rate of inflation will require a specific Public Interest Report to be presented to the Dáil.
Examine further tax measures to make investment in high-tech, export-oriented Irish firms more attractive to investors.
Review the operation of the Tax Credit for Research and Development in Ireland to see how it can be made more attractive to smaller, Irish-owned companies that are seeking to develop new products and services.

A Greener Tax System

As set out elsewhere in this manifesto, Labour is committed to comprehensive and urgent action to tackle climate change. As part of this broader plan, we will take the following fiscal measures:

We will rebalance VRT in a revenue-neutral fashion to favour lower-emission vehicles.
We will abolish excise duty on biofuels produced from renewable energy crops, in conjunction with other measures to stimulate the development of a market in biofuels.
We will introduce a stamp duty credit linked to a sustainability rating structure (reducing prices of energy efficient buildings in built up areas).

A More Equitable and Efficient Tax System

Under Fianna Fáil and the PDs, the Irish tax system has been distorted to facilitate systematic avoidance of taxation by wealthier individuals in Irish society. The spectacle of millionaires paying little or no tax is both profoundly unfair and corrosive of public confidence in the tax code. We will ensure that the tax system is administratively simpler, more transparent and fairer.

We will establish a Commission on Taxation to examine tax schemes on an on-going basis, whose work will include:

Subjecting tax breaks to scrutiny of their costs and benefits.
Assessing compliance levels for different tax headings and revenue powers needed to protect the tax system; and
Presenting an evaluation of the tax burden and compliance costs for taxpayers.

We will put in place a tax-payers advocate, situated in the National Consumer Agency, to ensure that PAYE workers in particular get all the tax credits to which they are entitled.
We will cap the benefit that any one individual can derive from cumulative tax breaks on investments outside of his/her principal occupation so that very wealthy individuals cannot use such schemes to avoid paying a reasonable share of their income in tax.
We will extend tax relief at source to additional areas such as bin charges and medical expenses.
We will provide for equal tax treatment for couples in Civil Unions.

Decentralisation

The introduction of the decentralisation programme flew in the face of all established procedures for ensuring sound decision-making and the government's own National Spatial Strategy. It threatens both to waste taxpayers' money and damage public services. There is a real danger that major property commitments have been entered into which will only offer partial service and create wasteful duplication. It has also undermined morale and operating efficiency in the public service.

This approach has damaged the potential for a rational and coherent decentralisation programme based on consultation and fair procedures. Labour proposes to create a framework where the best elements of the present decentralisation programme can be secured and further potential opportunities developed for the future. In government, Labour will adopt the following approach:

An Immediate audit will be undertaken of the existing proposals. We shall proceed with those which have a sound business case, and a good regional fit. Decentralisation should be voluntary and based on genuine consultation.
Where the specific proposals are found wanting, we will seek to identify alternative opportunities for decentralisation which have the potential to succeed given a sensible and well planned timescale. This must be part of a wider strategy for balanced regional development.
We will reverse the decision to move some of the core policy planning units of government departments away from Dublin city as it would undermine the continuing effectiveness of policy development. It is our clear preference that 'stand alone' business units be moved under the decentralisation programme. We are also opposed to the moving of specialist posts which results in the loss of vital expertise or wasteful duplication of posts. We recognise the particular position of staff in state agencies. The Fair Society - Labour Manifesto 2007