Varadkar proposes new income tax rate amid fears price rises could last two years

Varadkar proposes new income tax rate amid fears price rises could last two years

Some 200 complaints have been received by the CCPC about fuel pricing in the past fortnight.

The Tánaiste has floated a new middle rate of income tax as he warned that high inflation could go on for another two years.

Leo Varadkar has asked Finance Minister Paschal Donohoe to examine a 30% rate of income tax in a bid to help ease the rising cost of living for middle-income earners.

“One thing we should take a look at, and I have asked Minister Donohoe to look at the pros and cons of it, is whether we should have a middle rate of 30% because you do suddenly go from 20% to 40%,” Mr Varadkar told the Institute of International and European Affairs (IIEA).

There might be a case for having a middle rate of 30% for people on middle incomes so that you wouldn’t maybe get to that highest rate of 40% until you earn a little bit more.

“We are a low-tax economy in the round, but we are not low-tax when it comes to income tax, particularly for people on middle incomes, those who earn more than €38,000, couples who earn more than €60,000 or €70,000," he said.

Mr Varadkar said the current level of inflation has not been seen since the early 1980s, but said he agreed that "the spike in inflation is not temporary. It could go on for two years or more."

It comes as a new survey has found that households will be, on average, €2,000 less well off this year as soaring fuel and food prices eat into their spending power.

Consumer confidence is plummeting at the fastest rate since the onset of the Covid pandemic two years ago, according to the latest KBC Bank survey.

We estimate the economy-wide hit from higher inflation could be over €4bn or about €2,000 per household," said Austin Hughes, chief economist at KBC. 

Most consumers say they plan to cut back spending this year, with almost half suggesting they will cut back their household spend significantly.

The survey findings come as TDs and senators were warned that motorists will spend €680 more on petrol and €700 more on diesel than in 2020. The AA's Tom McIlduff told the Oireachtas transport committee that fuel prices are up 62c and 70c, respectively, compared to two years ago.

However, representatives of the fuel industry have rejected claims that the sector had profiteered after the Government announced cuts to excise duty. Kevin McPartlan of Fuels For Ireland told the committee that the Government had given the public a false impression about the impact of the excise cut.

You had more than one minister of the Cabinet telling people they can expect a reduction at midnight that night when they knew — or if they didn’t know, they should have — that that wasn’t true," he said.

“This could simply not have happened, as excise had already been paid on supplies that were on forecourts that night. It gave people a false impression that prices could fall immediately, and caused anger and frustration that was often directed at our colleagues."

“The very earliest would have been the next day … but it could have been 10 days later.”

Yesterday, the Competition and Consumer Protection Commission (CCPC) said there was insufficient evidence of fuel price hikes to suggest a price-fixing cartel is in place.

Some 200 complaints have been received by the CCPC about fuel pricing in the past fortnight, but it told the Oireachtas committee on enterprise that price increases alone are not evidence of a cartel.

Meanwhile, Sinn Féin leader Mary Lou McDonald said it is deeply disappointing that the Government is ruling out any further measures to ease the cost-of-living pressures before October’s Budget.

She said families are at serious risk from ever-rising fuel and food prices, while repeating her calls on Government to urgently cut VAT rates on fuel for three months. She also urged an immediate cut in excise duty on heating oil.

Replying for the Government, Public Expenditure Minister Michael McGrath said the Government has demonstrated that it is “agile and responsive” to the pain being felt by families.

The war in Europe has prompted fears that inflation will quicken further, while economic expansion will stall. In a “severe” scenario of an escalating conflict and even broader sanctions in response, the ECB sees price gains accelerating to 7.1% this year, with growth at just 2.3%.

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