Income tax

Ministers back widening income tax brackets rather than new 30% rate – The Irish Times

Government ministers are expected to favor widening income tax brackets as a means of easing the tax burden on middle-income earners from a new rate of 30%.

The annual Tax Strategy Group (TSG) papers, to be released by the Department of Finance on Wednesday, will set out the pros and cons of each approach, including the number of taxpayers likely to be affected, without making explicit recommendations in a one way or the other.

The introduction of a new rate of 30% would benefit more than a million taxpayers in the Republic, concludes an analysis in one of the newspapers. However, government sources are believed to believe that such a move would involve a substantial shake-up of an already complex tax system.

The proposal to create a new income tax rate of 30% was originally raised by Tánaiste Leo Varadkar. In a recent interview with The Irish Times, he said taxpayers here were paying the highest rate of income tax “on far too low an income” and the issue had been flagged as a concern by businesses considering to invest in Ireland.

By international standards, workers here end up paying the highest rate of 40 percent at relatively low income rates – on anything over €36,800 for a single person.

Tax strategy papers will also assess the cost of indexing social benefits, tax credits and income tax brackets to inflation or income growth, a move that could benefit 1.7 million taxpayers.

Several OECD countries have a tax indexation system linked to wage growth. Such a move, while costly, gives people more certainty that they will be able to keep their medical cards, housing subsidies and child care subsidies even as their income increases.

TSG documents are released each year before the budget and are intended to inform the government’s fiscal policy without being prescriptive.

“The TSG is not a decision-making body and the documents produced by the department are only a list of options and issues to be considered in the budget process,” a finance ministry spokesperson said.

He said this year’s papers will look at income tax options for the 2023 budget, look at various property tax reliefs and look at how taxation supports climate action goals.

The budget package of 6.7 billion euros proposed by the government includes 1.05 billion euros in tax measures, which is double what was initially planned. Along with a package of measures to address the current pressure on the cost of living, the budget should also include measures specifically targeting middle-income people.

Record public treasury figures for July show the state collected 43.5 billion euros in taxes in the first seven months of the year, 8.3 billion euros more than during the same period in 2021, which could give the government more leeway in the fast-track procedure next month. budget.

As inflation hits its highest level in four decades and further energy price hikes are underway, opposition parties are calling for more action to tackle the cost of living crisis . However, several groups and agencies, including the Institute of Economic and Social Research and the Irish Tax Advisory Council, have warned the government that untargeted measures to deal with inflationary pressure could end up stoking price growth.