Minister for Finance Paschal Donohoe has said a 30% rate of income tax is “technically possible” and that Budget 2023 will contain an overall personal tax package that will aim to help with the rising cost of living.
Minister Donohoe said the Government has confirmed that tax changes of over one-billion-euro will happen, and in the coming weeks they will identify how that money can be used in the most effective way.
Speaking on RTÉ’s Morning Ireland, the minister said there will also be “one off measures in 2022” that will help with the rising cost of living during winter.
“We know people are feeling the squeeze… we want to see how we can help with that.”
Mr Donohoe said the key focus is on personal taxation measures that will recognise that families and households are working hard but the “rising cost of living is biting”.
“We will have a personal tax package to help with that,” he said.
“What I do recognise is you enter the higher rate of income tax here in Ireland when you are on a normal or average wage and that is very different to many other economies that we compete with, or near our country, and budget by budget I have changed that.”
The minister said he will identify how he can do that again.
When asked about calls to introduce Budget measures earlier, he said making any tax changes within a calendar year is hard to do as it requires every employer to change their payroll systems.
He said that as wages and income are going up, people end up paying more tax as a result of getting a wage increase if the tax levels are not changed.
“And at a time in which wages are going up we believe we should be doing what we can to help workers keep as much of the money they are earning,” Minister Donohoe said.
“What we are now discussing is the different ways in which we can do it. It can either be done through for example a 30% tax rate, an alternative way it can be done is move the existing tax rates and existing credits and bands.”
Minister Donohoe also said he understands why people would be calling for additional taxes on the energy sector, but he remains cautious of such a move.
He said the renewable, wind and solar sectors need to be “delivering more” energy so Ireland and Europe can be more energy independent and not face security risks that are currently an issue.
“Any sudden change in how those sectors are taxed could undermine that ability to get to that independence at a point in the future particularly when other forms of energy are being compromised,” he said, adding that the focus for now needs to be on additional wind energy sources off Ireland’s shores.
Social Democrats co-leader Róisín Shortall has said there is no doubt that a large social welfare package will be needed in the upcoming Budget “because people who are dependent on social welfare payments have very much fallen behind over recent years.”
Speaking on RTÉ’s Morning Ireland, Deputy Shortall said the €15 a week increase that has been suggested should be benchmarked against wages or inflation.
“It is essential we do that”, she said.
“If you’re dependent on social welfare – pensioners, people dependent on disability payments, all kinds of different welfare payments – that it should be possible to survive with dignity and we need to benchmark those rates in order to do that.”
At the end of September, the Government will unveil a multi-billion-euro plan that will attempt to alleviate some of the pressure on taxpayers dealing with inflation and the spike in the cost of living through tax cuts and increased spending.
The Department of Finance has published some policy options on tax strategy.
Ms Shortall said her party does not back the tax cuts as suggested in the Government’s policy options, as she does not believe that is the best way to go about spending public money.
She said all recent advice to the Government has been to target support and avoid a “scattergun approach”.
She said there is a case for index linking tax credits, which would help people across the board and ensure that those who have wage increases are not paying more tax as a result of that.
Instead, she said, there needs to be a claw-back from high incomes because now the tax relief that middle earners get applies to higher earners too.
She said she is concerned about the “anti-tax and anti-public service sentiment” of Tánaiste Leo Varadkar because tax is what pays for vital services for all of society.
“Taxation is very important, none of us like paying it, but it’s very important because it’s the tax receipts that pay for our public services.”
The proposals yesterday, she said, offer nothing for people earning under €36,000.
“Overall, we need to ensure that we don’t erode the tax base. Because ensuring that we have good quality public services and access, free access to healthcare, for example, that our education service is genuinely free, that childcare is subsidised, that retrofitting is affordable. All of those things are much more valuable to people rather than an extra €10 back in in tax cuts.
“So, it’s important that we operate that social contract so that we have the kind of society that works well, but we have good quality public services and whether people are on low pay or middle incomes, they have to be able to depend on public services and that’s the best way of cutting the cost of living for everyone.”