McGrath says budget to contain tax cuts even as ESRI sounds warning

Minister for Finance Michael McGrath said that Budget 2024 will contain measures to reduce the income tax burden, even after the Economic and Social Research Institute’s (ESRI) warned on Thursday that there is “no rationale” for tax cuts.

The parameters of the next budget will be set out next Tuesday as the Government finalises its summer economic statement, the Minister said to reporters in Dublin as he attended the launch of a Financial Services Union (FSU) strategic plan.

“We have a Programme for Government commitment to index-link [tax] credits and bands and the Programme for Government will be honoured,” the Minister said.

“First and foremost, were you to make no changes whatsoever to your income tax code, then, as incomes rise, tax increases by stealth and, in fact, the effective rate of tax that people pay will actually increase.

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“The second reason is that Ireland’s income tax system is an issue that comes up regularly when engaging with foreign direct investment clients of the IDA. They recognise we have a highly progressive system but they also recognise that the burden of income tax is quite high at a relatively low level of income.

“I do think it’s important for our competitiveness, that we do continue to make progress on that.”

Mr McGrath said, however, a balance needs to be struck with the tax package as there is “a real risk in relation to potential overheating” of the economy, with the ESRI forecasting that modified domestic demand will expand by 3.5 per cent this year and 4 per cent in 2024.

“I do take seriously all of the advice we are receiving from IFAC [the Irish Fiscal Advisory Council], the Central Bank and, now, the ESRI – and also a range of international bodies,” he said. “We will consider that advice carefully. But, the Government, of course, has a broader mandate in that we have to consider the needs of the people we represent and the needs of businesses.”

Meanwhile, the Minister said that it is difficult for the Government to make any major decisions on RTÉ's funding model as the “maelstrom” surrounding the broadcaster’s €345,000 of hidden payments to presenter Ryan Tubridy.

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Mr McGrath said “there does seem to be a cultural problem at senior levels” in the State-owned broadcaster and that it has yet to give an adequate account publicly of the nature of the transactions.

The only way forward for RTÉ is to provide complete “warts and all” transparency on the background of the controversial payments, the Minister said.

“It’s difficult for Government to make any fundamental decisions around the future funding model in the maelstrom RTÉ is in,” he said. “We would hope that this is going to be dealt with over a relatively short period of time and the decisions can be made. But the Government’s commitment to public service broadcasting is assured and will continue into the future.

“The precise model and the mechanism of that will need to be worked out. There is a lot of noise on this issue at the moment. We just need clarity on exactly what happened, why it happened – and that will enable the Government to move on and make important public policy decision so that the ordinary staff in RTÉ can get on and continue with their work.”

A Government review of loss-making RTÉ's funding model has been ongoing but a final decision on the outcome has now been paused pending the completion of an external review of governance and culture at the broadcaster, which was ordered amid the furore around the underreporting of Mr Tubridy’s salary.

The broadcaster has been pushing the Government to introduce a compulsory licence fee for households, whether they have a television or not, as it is currently losing about €65 million amid licence fee evasion and avoidance.