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Thursday 27 October 2016

Michael Noonan moves to hike income tax for 270,000 workers

Published 20/07/2016 | 02:30

Michael Noonan Picture: Chris Bellew
Michael Noonan Picture: Chris Bellew

Thousands of workers will end up paying more income tax if Finance Minister Michael Noonan goes ahead with plans to remove a key tax credit for middle and higher earners, a leading tax body has claimed.

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Mr Noonan said recently he planned to restrict the PAYE tax credit for earnings over €70,000.

But the Irish Tax Institute said this would see 270,000 workers being hit with a marginal tax rate of 70pc - one of the highest in the western world. The marginal rate is the income tax you pay on higher amounts of income.

The tax body said this would mean workers earning more than €70,000 would end up facing higher income tax bills than workers in Paris, London, Madrid and Stockholm.

IDA Ireland recently warned that high income tax was making it difficult to attract foreign investment and hitting job creation, which was especially important in light of Brexit.

The PAYE tax credit is a deduction from income tax for those in employment.

It is worth €1,650 per taxpayer. Last month, Mr Noonan said he intended to gradually remove the universal social charge (USC). As part of this, the existing PAYE tax credit for high earners will be removed "to further enhance the progressivity of the income tax system", he said, when explaining the Summer Economic Statement.

Workers with a salary of €70,000 upwards will be subjected to a 'solidarity levy' to ensure low and middle-income earners gain most, he said.

If the PAYE tax credit is removed, it will probably be done on a sliding scale.

Irish Tax Institute president Mary Honohan said that if the PAYE tax credit is removed at a salary of €70,000, and is tapered out for income earned between €70,000 and €80,000, the marginal rate of tax on every euro of income earned in this €10,000 band will be 68.5pc.

This is more than 10pc points higher than the current marginal rate of 53pc.

A Department of Finance spokesman said middle and high-income earners would benefit from USC reductions.

Irish Independent

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