Current income tax rates and bands to remain unchanged

CURRENT income tax rates are to remain unchanged as part of the new Government’s fiscal policy to promote economic stability and growth.

The Programme for Government has stated that all existing income tax rates as well as bands and credits will be maintained despite the financial constraints it faces over its attempts to meet the target of reaching the 3% of GDP deficit target by 2015.

However, householders are likely to face water charges and a site valuation tax over the term of the Fine Gael-Labour administration as new sources of revenue need to be found as part of the Government’s deficit reduction strategy.

The new Government has also promised to review the controversial Universal Social Charge — introduced in December’s budget which replaced the income and health levies — and is charged on all gross income more than €4,004 per annum.

Not surprisingly, the Government has stressed it will maintain the corporate tax rate at 12.5% as a key incentive to continue to attract foreign investment, despite pressure from other EU countries to change the rate.

The Government announced it will reduce, cap or abolish property tax reliefs and other tax shelters which benefit very high-income earners. It claimed it will ensure that very high earners will also pay a minimum effective income tax rate of 30%.

It said other measures would be introduced to ensure that tax exiles make “a fair contribution” to the Exchequer.

As part of the previous Government’s deal with the IMF, the incoming administration said it would consider various options for a site valuation tax.

However, the new Government said the formulation of any such tax would have to take into account the large number of households experiencing difficulties in meeting mortgage repayments, as well as the need to consider how to provide local government with a reliable stream of revenue.

It is also committed to introduce water charges for usage above a free allowance level once the planned instalment of water meters in every household is completed.

The Government will also establish a State-owned water utility company to take over the responsibility of water supplies from local authorities.

The reduced VAT rate which applies to a range of goods and services, many labour-intensive, is to be lowered from the current 13.5% to 12% up to the end of 2013.

Although the outgoing Fianna Fáil-led government announced it would increase the standard VAT rate from 21% to 22% in 2013 and to 23% in 2014 as part of austerity measures linked to the EU-IMF bailout, the Programme for Government makes no specific comment on whether it will persist with such VAT increases.

Instead, it states it will limit the top rate of VAT to 23%.

The controversial air travel tax, which was reduced from €10 to €3 for most flights in the budget, is to be abolished entirely, despite raising €100 million in a full year.

The Government said the tax would be scrapped as part of a deal with airlines to restore routes cancelled in recent years.

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