Several senior Government sources from across the coalition have confirmed that there was “a lot of political discussion” between the party leaders and senior ministers, with Fine Gael demanding a strong commitment to the tax rate in the context of next year’s budget.
However, Fianna Fáil ministers, including Taoiseach Micheál Martin and Michael McGrath pushed back, insisting their hands would “not be tied” before took over the finance portfolio in December.
The refusal to be “boxed in” stems from a deep sense that such an additional rate of tax is not needed.
Thehas learned that the language in the section about the third rate of tax was subject to a considerable amount of back and forth and a compromise was reached.
It was agreed that neither side would rule it out, Fianna Fáil said it would only commit to scoping out.
However, senior Fianna Fáil sources have indicated that a move to a third rate of tax is “highly unlikely”.
“I don’t think it will happen. We have eight different levels of deduction already. We hardly need a ninth,” one senior source said.
“One rate of PRSI which kicks in at €22,000 and there are five rates of the universal social charge. There is merit in looking to merge USC with PRSI. The tax system should be clear and simple,” the source added.
Sources have said that the strength of the relationship between Mr McGrath and Mr Donohoe helped to resolve the matter amicably ahead of Budget day.
In his budget day speech, Mr Donohoe only said his department will engage with the Revenue Commissioners on the necessary preparatory work, in advance of a policy decision being made by Government.
He said were the Government to opt for the introduction of a third rate of income tax, it would require considerable change to the systems in both the Revenue Commissioners and payroll providers; changes that will need significant lead-time to implement.
It has also emerged that the departments of health and welfare “went to the wire” the night before the Budget before their allocations for 2023 were resolved.
Tensions over the rates and scope of ancillary welfare benefits and a major “gulf” between Mr McGrath’s department and Stephen Donnelly’s health department were only resolved “at the last minute”.