Ireland: Income levy causes controversy
In October 2008, the Irish government made concessions after its plan for a new levy of 1% on all incomes was strongly opposed by trade unions, which feared that it might scupper the draft national pay agreement on which union members are currently voting.
On 14 October, the government unveiled its plans for the 2009 state budget, against the background of what the minister for finance, Brian Lenihan, called the “most challenging fiscal and economic position in a generation”. The plans included the introduction of an “income levy” - a new tax on all incomes aimed at restoring “order and stability” to Ireland’s shaky public finances. The levy would be set at 1% on income up to €100,100 a year, and 2% on income above this level.
The announcement caused a furore among trade unions, which are currently balloting members over acceptance of a draft national pay agreement reached in September. The proposed deal provides for a total pay increase of 6% - or 6.5% for lower-paid workers (those with a basic hourly wage rate of €11 or less) - over 21 months, with an initial pay pause of three months in the private sector and 11 months in the public sector.
Unions argued that the levy would wipe out the additional 0.5% pay increase for lower-paid workers - of whom there are some 700,000 - in the draft agreement. They claimed that the levy, along with other changes in the budget, such as increases in VAT, petrol tax and medical charges, would disproportionately affect vulnerable workers. The Irish Congress of Trade Unions (ICTU) general secretary, David Begg, warned that workers might express their anger at the new levy by voting against the draft agreement.
A trade union delegation met the prime minister, Brian Cowen, to express their concerns, and, on 21 October, the government announced that the levy would not apply to incomes at or below the national minimum wage, currently set at €8.65 an hour, which is around €17,500 per annum for those on a 39-hour week. People earning over this amount would have to pay the levy on their whole income. To make up for the resulting shortfall in public receipts, the annual income level above which a 2% levy is payable may be lowered.
Cowen stated: “While the government believe that it’s not unreasonable that everyone should make a contribution, however modest, in accordance with their income in these difficult times, we are prepared in the context of the importance which we attach to social partnership and to the draft agreement to provide in the finance bill that the levy will not apply to incomes up to the level of the national minimum wage.”
Begg commented: "While we had sought a higher threshold - at €11 per hour as opposed to the €8.65 minimum wage - it is clear that this move will benefit those on the lowest incomes, who have been excluded from the tax net as a matter of public policy for some time now. Obviously, they should never have been targeted in the first place and an indiscriminate instrument like the blanket 1% levy should never have been considered, let alone introduced.”
The Services, Industrial, Professional and Technical Union (SIPTU), Ireland’s largest union, had deferred the decision on whether or not to recommend the draft agreement to its members until after the meeting with the government over the income levy. On 22 October its national executive recommended that SIPTU’s 200,000 members should ratify the deal. The union’s president, Jack O'Connor, said that members should not forgo the general pay improvements and the possibility of enhancing employment rights represented by the national agreement because of the “unsavoury” provisions in the budget.
Other major unions that have recommended approval of the draft agreement include Impact (public sector), Mandate (retail) and the Irish National Teachers’ Organisation. After the balloting process is complete, ICTU will hold a special delegate conference on 17 November to vote on the deal.
The decision not to apply the levy to those earning at or below the minimum wage has been criticised by business groups. The Irish Small and Medium Enterprises Association, for example, argues that this will provide a significant disincentive for those on the minimum wage to work overtime. Its chief executive, Mark Fielding, said: “An employee on €17,500 is exempt from the levy, but if they earn €1 more, the levy is applied to all earnings, incurring an immediate liability of €175. In other words, to earn €1 more would cost someone 175 times that amount. This is a ridiculous situation and a hare-brained proposal, which was only brought in to appease the unions, but has the affect of disincentivising work.”
European Employment Review 418 (EER 418) contents
