Movement on tax bands and USC expected in budget
Finance Minister Jack Chambers has said that the budget's tax package will ensure that people do not find themselves paying a higher rate if they receive a wage increase. Picture: Leon Farrell / Photocall Ireland
Workers are set for a significant financial boost with tax band changes to take account of wage growth, while a move on the universal social charge (USC) now expected in what will be the current Government's final budget.
However, the reintroduction of the special 9% Vat rate for hospitality is all but off the cards, with the Department of Finance claiming it "remains unjustified".
A €200 car parking levy and increases to motor tax are also included on a menu of options put forward in the Income Tax Strategy papers, published on Tuesday.
Finance Minister Jack Chambers has already made it clear that he wants to “give workers and families a break” and has said that the tax package will ensure that people do not find themselves paying a higher rate if they receive a wage increase.
Indexing the entire personal tax system to take account of 4.5% wage growth would cost €1.17bn in a full year, the tax strategy papers show.
Mr Chambers has a €1.4bn pot to deliver tax cuts as part of Budget 2025, giving him to opportunity to both significantly raise the threshold which people enter the higher rate of tax and make changes to USC.
The papers produced by the Department of Finance's Tax Strategy Group (TSG) put forward a number of options in relation to USC, including decreasing the rates and increasing the thresholds.
Axing the 0.5% rate of USC would cost €160m per year the paper finds; reducing the 2% rate to 1.5% could cost €170m; while cutting 0.5% from the 4% rate would cost €230m. Dropping the 8% rate to 7.5% would cost €160m.
Another option put forward is to increase the threshold which people start to pay the various rates of USC.
Total income tax receipts are expected to increase by 5.6% or €1.9bn this year, which will provide the Government with significant resources for a pre-election budget.
But despite sustained calls from the hospitality industry, the Department of Finance has said that cutting the Vat rate on such services from 13.5% to 9% “remains unjustified”, as the cost of this reduction in one year would be €764m.
“Even where the measure is restricted to food and catering services, the estimated full-year cost is €545m,” it said.
“Therefore this would constitute an enormous fiscal transfer of taxpayer’s money to the sector which the evidence available at present does not support", the papers state.
The tax strategy papers also make clear that Ireland “must deliver” on agreed climate action measures, with taxation playing a role to achieve that.
Highlighting measures that could be changed, it said that the lower rate of almost 10c a litre applied to diesel fuel compared to petrol is costing the exchequer around €400m a year.
This could be phased out over a number of years, with the shortest timeframe of three years likely to result in an additional €147m in tax collected each year.
If the phasing out of this “diesel gap” was fully passed onto consumers, it would mean it would cost an extra €8.56 to fill a 60-litre tank full of fuel, it said.
It also points out that a number of reliefs and schemes to mitigate the impact of the carbon tax are available, such as the double income tax relief for farmers and the residential retrofit programme.
“However, over the long term, national and international commitments to phase out fossil fuel usage will involve unwinding of such subsidies,” it said.
Looking at the taxation of vehicles, the papers said that if Ireland’s climate action targets are to be met by 2030, then vehicle taxation for average-emission vehicles will need to increase.
It also examines in depth the idea of a car parking levy, the introduction of a €200 per annum flat rate paid by an employee where a car parking space is provided by an employer in an urban area.
But the papers say such a levy, proposed as far back in legislation as 2008 for environmental reasons, could be viewed as “grossly unfair” to many workers. The Department of Finance recommended against such a measure.
