Minister for Finance Michael McGrath has promised a “substantial” income tax package in the upcoming budget.
Addressing the National Economic Dialogue conference in Dublin, Mr McGrath said he expected the package to include further changes to tax credits and universal social charge (USC) bands and another lifting of the entry point at which workers pay the top rate of income tax.
“I expect to be in a position to deliver a further substantial income tax package in October which will again include changes to tax credits, the standard-rate cut-off point and the USC,” Mr McGrath told the event.
In Budget 2024, the Government lifted the threshold for paying the higher 40 per cent rate of income tax from €40,000 to €42,000 for a single person, meaning employees could earn an extra €2,000 before paying tax at the higher rate.
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While no budget decisions have yet been taken there were a number of themes “which will be foremost in our thinking as we frame the package,” Mr McGrath said, noting the Coalition would set out the fiscal parameters of Budget 2025 in its forthcoming Summer Economic Statement.
“It is important that we have a competitive personal tax system here in Ireland as it is a factor when it comes to investment decisions that are made internationally,” he said.
In his address, Mr McGrath also noted that Irish households would enjoy an improvement in living standards this year as real income growth outstrips inflation.
Inflation is on a downward trajectory “and this has been achieved without any increase in unemployment,” he said.
“This year, after some difficult years for households, the overwhelming majority will experience an improvement in living standards as the rate of income growth outstrips the rate of inflation and that has been and will be complemented by different fiscal decisions,” he said.
Mr McGrath said his department was predicting the Irish economy would grow by just under 2 per cent this year in terms of modified domestic demand and by a further 2.25 per cent next year.
He warned there were a number of risks to that outlook, however.
“The key message that we are trying to convey is that the global economic landscape is in a state of flux – geopolitical strains are spilling over to the global economy, mainly via changing trade and investment patterns, increased protectionism and the re-emergence of industrial policies,” he said.
“We have a small, open trading economy that is highly dependent on the external environment, so those shifting sands do represent a very significant challenge and a threat for our country,” he said.
“The fall in the rate of inflation which we are experiencing, taken together with increases in earnings and welfare payments means that we will see an improvement in real living standards this year,” he said.
Also addressing the conference was Minister for the Public Expenditure Paschal Donohoe, who highlighted the “shock-prone” nature of the global economy and the Government’s fiscal response to recent crises.
“Developments over the past few years have required a responsive expenditure strategy. The Government has sought to balance these emerging needs, including through cost-of-living supports, with continued investment in day-to-day public services and infrastructure whilst also seeking to maintain a sustainable trajectory for public finances over the medium to longer term,” he said.
“This approach has been possible because of the sound management of our public finances,” he said.
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