Income earners who earn less than the average working wage but who get hit with the top rate of tax are likely to see major reliefs in October’s Budget, it is expected.
There is a strong desire within the Government to reduce the burden of income tax on low-to-middle income earners and increasing the entry point appears to be a favoured option.
This is because workers in Ireland begin paying the top rate of income tax much earlier than workers in many other developed countries.
At present, a single person working begins to pay the top rate of tax at €33,800 or up to €67,600 for a married couple where both work.
Yet, according to the CSO Yearbook Of Ireland 2016, the average wage is €45,075 for someone working full-time.
Senior Government sources, speaking to the Irish Examiner, have indicated that the entry point at which the top rate of tax is paid is likely to increase over a number of budgets and Finance Minister Paschal Donohoe has made it known that he supports such moves.
“People earning less than the average industrial wage should not be paying the higher rate of tax,” said one minister. “It is simply wrong.
“We can begin to move on this over a number of budgets as the money is tight but it has to happen.”
While Mr Donohoe has not finalised his taxation package, both he and Taoiseach Leo Varadkar are minded to reduce the burden of income tax, despite a softening in tax revenues and also increasing fears for the economy in light of Brexit.
“This is an expression from some in the party and Paschal has made a similar point himself,” said another minister. “But no decisions have been made in relation to taxation for Budget 18.”
It is accepted that any moves on taxation in the Budget will be “modest” and it is seen as impossible to increase the entry point to the top rate of tax in one go.
In recent days, Mr Donohoe has told colleagues and also delegates at the National Economic Dialogue of “steady and incremental” progress on improving the tax situation for middle income earners.
Mr Varadkar’s first budget will be very tight, with the ‘fiscal space’ — the amount of new money that can be spent — estimated at around €550m. This figure, however, includes money that will be spent on the public sector pay deal.
The Taoiseach and Mr Donohoe are said to be in “full agreement” that tax breaks for those low to middle income earners are prioritised.
“I am determined that we find some space to increase the takehome pay of 2m people who work really hard in this country, who get up every day, go to work, pay the taxes that make everything else possible,” the Taoiseach said this week.
The two men see reducing income tax while committing to a significant capital investment programme as key priorities and this will be set out in the Summer Economic Statement which is due to be published shortly.
According to figures released by Mr Donohoe’s department, the amount of extra spending money available for 2018 is highly curtailed.
The carryover impact of measures included in last year’s budget will eat a €400m black hole into that pot.
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