Middle-income earners to benefit if 30% tax rate introduced

Minister for Finance Paschal Donohoe has been examining how a middle rate of income tax could be introduced in the upcoming budget. Picture: PA

A new 30% tax rate, which would apply to 1m taxpayers, will be included in a pre-budget analysis to be released on Wednesday, but no decision has yet been made on its introduction.

The new middle-income rate will form part of the Tax Strategy Group papers to be released on Wednesday ahead of September's budget. Sources said that the analysis shows that 1m taxpayers — either couples or individuals — could fall into the new band.

However, sources said that the papers merely lay out the arguments for and against such a move and do not definitively make a recommendation. 

A source said the papers were a "very straight bat approach". There are also doubts about whether such a large reorganisation of the tax structure could be achieved by next month.

Finance Minister Paschal Donohoe has been examining how a third, middle rate of income tax would work and how it could be implemented after being requested to do so by Tánaiste Leo Varadkar. The issue is seen by many in Fine Gael as a key demand from next month's budget.

The papers will also lay out the arguments for indexing tax credits and tax bands as committed to in the programme for Government. 

That document commits to such a move "to prevent more low-income workers being taken into the tax net because of no changes to the tax system and to ensure there is no increase in the number of people having to pay higher income tax and USC rates".

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A senior Fine Gael source said that the issue for the party is the "scale and impact of any proposal on middle-income earners". The source added that, while the party wants to see core social welfare rates increase, "we can’t have middle income earners only getting €5-€10 extra in tax cuts".

Another Government source said there was a "balance" to be found between an amount that workers could see in the take-home pay and how much of the Government's fiscal space heading into the budget is taken up by tax measures.