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Proposed 30% tax band could see Irish taxpayers keep an extra 500 euro a year

The Tax Strategy Group has published their conclusions on a range of tax policy options and issues.

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Finance Minister Paschal Donohoe and Minister for Public Expenditure Michael McGrath speaking to the media outside Dublin Castle after the Irish Government announced that they will extend the lower VAT rate for the hospitality sector (Niall Carson/PA)

Finance Minister Paschal Donohoe and Minister for Public Expenditure Michael McGrath speaking to the media outside Dublin Castle after the Irish Government announced that they will extend the lower VAT rate for the hospitality sector (Niall Carson/PA)

Finance Minister Paschal Donohoe and Minister for Public Expenditure Michael McGrath speaking to the media outside Dublin Castle after the Irish Government announced that they will extend the lower VAT rate for the hospitality sector (Niall Carson/PA)

The Irish government’s tax advisory group has published papers that indicate a third income tax band could see up to a million taxpayers take home an extra 500 or 1,000 euro a year.

Middle and high-income earners would see “a direct increase in their net income” if such a measure were introduced, while low and modest-income earners “would not directly benefit from this proposal”, the group said.

In the tax strategy group papers published on Wednesday, as part of preparations for Budget 2023, the civil servant group advised on possible changes to income tax rates.

There are currently two rates of tax in Ireland, one at 20% and a higher rate of 40% for earnings over 36,800 euro for individuals, and 45,800 euro for married earners in one-income households.

In Budget 2023, we will put in place measures that continue to help workers get the higher income and higher wages that they are receiving due to their workPaschal Donohoe, Finance Minister

In its income tax paper published on Wednesday, the group said that it is generally considered that the entry point for the higher rate of income tax in Ireland “is low by international standards”.

If adding a third band, the group outlines two options: income taxed at 30% for those earning 36,800-41,800 euro, which would cost the Exchequer 525 million euro a year.

This would see individuals and married couples with one earner take home an extra 500 euro a year.

The second option would be to set the 30% tax rate at incomes between 36,800-46,800 euro, which would cost 945 million euro for a full year.

Individuals and married single-income couples would take home an extra 1,000 a year under this 10,000-euro band.

The extra tax band could see up to one million taxpayer “units” benefit, which is around 35% of all taxpayers.

The group warns, however, that the “complex change” would necessitate “big alterations” to Revenue’s systems as well as changes for payroll providers, “to ensure the feasibility and operability of the new structure”.

The current two-rate structure of income tax has been in place since the early 1990s.

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Leo Varadkar: ‘It’s important to emphasise the government hasn’t decided to do anything at all contained in the papers’ (Damien Storan/PA)

Leo Varadkar: ‘It’s important to emphasise the government hasn’t decided to do anything at all contained in the papers’ (Damien Storan/PA)

Leo Varadkar: ‘It’s important to emphasise the government hasn’t decided to do anything at all contained in the papers’ (Damien Storan/PA)

Minister for Finance Paschal Donohoe said that the effectiveness of any changes to the tax band structure would have to be considered alongside one-off cost-of-living measures that may be taken later this year.

“You have to look at our budget in the context of everything that will be in it. And, in addition to changes that we will make in personal taxation, the government has also indicated that we will bring forward with other measures that will be one-off in nature regarding the cost of living.

“The key thing is that, in Budget 2023, we will put in place measures that continue to help workers get the higher income and higher wages that they are receiving due to their work. We want to protect that.”

When asked whether the third band of tax could be introduced in the upcoming Budget, the Finance Minister said “it is probably more difficult to make changes in relation to taxation any earlier than we normally do because of the amount of payroll systems that need to take change across our country”.

“And the fact that we need every employer in the country to update their payrolls and update the level of tax that they are charging their employees means that it takes a little longer to implement tax changes than it does other policy changes the budget will have.”

Speaking at an event in Dublin, Tanaiste Leo Varadkar said: “Today, the tax strategy group papers were published, they set out different options for Government to consider, set out the pros and cons, set out the cost, it’s important to emphasise the government hasn’t decided to do anything at all contained in the papers.

“They are just options for government to consider between now and budget day and there are lots to consider,” the Enterprise Minister said.

“The possibility of 30% tax rate, middle tax rate for middle-income people is under consideration and the papers set out about a million workers will benefit from that and what potential costs will be.

What is agreed is the principle that we will see a very substantial income tax reduction package in the budgetLeo Varadkar, Tanaiste

“I think the most important thing to emphasise in relation to the budget, which is now only just a month away, is that it will contain a substantial income tax package that will reduce income tax for low-income workers, middle-income workers and high-income workers but a particular emphasis on middle-income workers.

“The exact detail as to how that is achieved is to be worked out between now and Budget Day but what is agreed is the principle that we will see a very substantial income tax reduction package in the budget.

“Almost all workers will benefit from that and it is necessary because it is one of the ways that we can help people with the rising cost of living.”

The Tax Strategy Group has published a dozen papers relating to tax matters on Wednesday, ahead of the unveiling of Budget 2023 on September 27.

The group is not a decision-making body; these papers list the options to be considered as part of the Budgetary process.

The Tax Strategy Group is chaired by the Department of Finance, with membership comprising senior officials and political advisers from various departments.


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