Budget 2009: Top-earners’ tax hike no Treasury aid – think tank
Plans to increase taxes for top earners were “very unlikely” to produce the predicted boost to Treasury coffers and could reduce revenues, a think tank has warned.
The Institute for Fiscal Studies (IFS) said a 45 per cent tax rate for those on incomes above £150,000 would not raise the £1.6 billion anticipated by Chancellor Alistair Darling in his Pre-Budget Report last November.
In a briefing note before tomorrow’s Budget, the IFS said the move would probably raise only about £550 million and could cause revenues to fall if measures to stop tax avoidance were not put into place.
The IFS said the rate increase – due to be introduced in April 2011 – could force some higher earners to leave the country or retire early.
It said that those who stayed in the system would look for ways to reduce their taxable income by working less, contributing to a tax-free pension or converting it into other types of earnings which are taxed at lower rates. Even if the Treasury is correct in judging the response to the rate increase, the IFS said the loss of VAT and other indirect tax incomes would shave revenues.
It said Government plans to withdraw the income tax personal allowance from those on wages of £100,000 and above in two stages from April 2010 was more likely to raise the predicted £1.6 billion.
The move creates two bands – between £100,000 and £106,475 and £140,000 and £146,475 – in which the marginal tax rate is 60 per cent.
