Donohoe to slash taxes to lure British workers to Ireland
Fianna Faíl demands cuts also be made to the USC as part of the confidence and supply agreement
Finance Minister Paschal Donohoe plans to slash income taxes for middle-income earners as part of an attempt to lure UK workers to Ireland after Brexit.
In a significant pre-Budget speech, Mr Donohoe said the Government would dramatically increase the
cut-off point of the standard rate of tax to ensure Ireland could compete with Britain.
As the prospect of a ‘no-deal’ Brexit intensified, the minister said the country should become “increasingly aware” of the difference between the standard rates of income tax paid in Ireland and the UK.
He said the Government would seek to ease the burden on middle-income earners by increasing the 20pc standard rate cut-off point over a number of budgets.
Speaking at an Ibec dinner, Mr Donohoe said he would introduce these tax cuts to ensure the country becomes “competitive with our neighbouring jurisdictions”.
“In particular, we must be increasingly aware of the difference in the cut-off point for the standard rate of income tax between Ireland and a post-Brexit UK,” Mr Donohoe said.
“Increases in take-home pay have positive knock-on consequences for businesses and jobs in the domestic economy.
"The Government is committed to measures that positively benefit workers while also keeping the tax base broad and ensuring that our personal taxation system is both competitive and resilient in the future," he added.
However, Fianna Fáil finance spokesman Michael McGrath moved to dampen expectations of a Budget tax bonanza for middle-income earners and insisted the Government would also have to introduce cuts to the USC.
"As well as increasing the entry point to the marginal rate of income tax, any personal tax package will also have to again include reductions in the USC as provided for in the confidence and supply agreement and which were delivered in the last two budgets," Mr McGrath told the Irish Independent.
"Negotiations are ongoing but we should also be honest with people and acknowledge that any tax cuts will be modest given the limited resources and the acute problems in housing and health," he added.
In the UK, taxpayers pay 20pc tax on all earnings between £11,501 (€12,954) and £45,000 (€50,687).
They pay 40pc tax on earnings between £45,001 and £150,000 (€168,982).
In Ireland, a single person pays 40pc tax on all earnings above €34,550 while a couple pays the same rate on earnings above €43,550.
In last year's Budget, Mr Donohoe increased the entry point for the higher rate of tax and suggested he will do the same this year.
However, Fine Gael is also committed to reducing the USC under the terms set out in the confidence and supply agreement with Fianna Fáil.
Speaking at the Ibec event, Mr Donohoe said: "It is my conviction that workers in our economy start to pay the marginal rate of tax at too low an income level.
"We cannot hope to remain competitive if someone on a relatively low income, and who decides to work a few hours overtime, has nearly half that extra money taken in tax.
"Progress has already been made to address this issue in the last number of budgets by focusing on reducing the tax burden on low to middle-income earners, while maintaining a broad tax base.
"This has been done by making targeted changes to the USC, but also by increasing the entry point to the higher rate of income tax," he added.
He said October's Budget will fulfil the Government's commitment to make "steady and sustainable progress" in reducing the income-tax burden for low and middle-income earners by concentrating on increasing the level at which workers fall into the higher tax bracket.
The comments will form the backdrop for the Budget negotiations between Fine Gael and Fianna Fáil.
Last year, there were tensions between the two parties over Fine Gael's decision to prioritise changes to tax bands rather than USC cuts.
Budget negotiations between the parties have been very cordial so far this year and Fianna Fáil has not set out any red-line demands.
The Finance Minister has also pledged to merge PRSI with the USC, but he is not expected to make any major decision on this policy in October's Budget.
A pre-Budget report published this week by the Irish Tax Institute showed workers are paying far more tax than they did before the financial crash.
A family with two relatively small incomes of €35,000 a year each are paying almost €2,000 more in tax than before the economic downturn.
Someone on €120,000 is down almost €6,700 over the past 10 years, while the net pay of single-income earners on €35,000 is down almost €1,000 a year compared to 2008.