Donohoe to focus on 20% tax band rather than rates

Reducing taxes for low and middle income earners will be a major objective of next month's budget, Minister for Finance Paschal Donohoe has said.

This would be achieved by widening income bands – the point at which taxpayers become liable for the higher 40 per cent rate – rather than cutting the rates themselves.

Currently a single taxpayer becomes liable for the higher rate after earning €33,800, a low level by international standards. The rate for married couples where just one is earning is €42,800. Increasing the band would benefit those earning above these income levels by ensuring that more of their pay would be taxed at the lower 20 per cent rate.

The Minister also indicated that the Government would press ahead with its plan to merge USC and PRSI, though he said this would take a number of years to complete. It would involve the extension of existing dental, optical and paternity leave benefits, he said. The programme for partnership government between Fine Gael and the independents pledged to abolish the USC.

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In a speech to the Kennedy Summer School in New Ross, Co Wexford on Friday, Mr Donohoe outlined four objectives for the budget, which will be announced on October 10th.

His first objective, he said, would be to balance the books.

"Budget 2018 will see, for the first time in over 10 years, Ireland achieve a broadly balanced budget . . . This means that money coming into the State's coffers in tax will approximately match the amount we are spending on vital public services like education, health and social protection."

‘Better opportunities’

Mr Donohoe said his second goal would be to invest State resources in the areas which would give “better opportunities for all”. This would mean investment in roads, energy and communications, health services, faster broadband and a more efficient public transport system.

He said his third objective would be to reduce tax for low and middle income earners. He would not divulge details but said it would not mean “unsustainable tax giveaways”.

He said his fourth and final aim in the Budget would be to support businesses and families to plan for the future. “This means having a long-term vision for this country, not just one that focuses on the short-term.”

Mr Donohoe said there was an inequality in the income tax system. “Taking nearly half of every euro earned by the time someone is earning an average wage is not fair, is not economically efficient and is not sustainable,” he said.

“This is a cap on aspiration and places a ceiling on the ambitions of our people.

“And while the economy is now doing well, we cannot rest on our laurels, thinking that we do not compete for investment and jobs in a global marketplace.”

Mr Donohoe vowed he would not resort to what he called “the failed policies of economic shock and awe”. This meant no dramatic cuts in tax or increases in spending as happened in the past, which could require painful corrections later, he said.

“From now on, budget day will be about incremental, sustainable but ambitious progress – progress on fairer taxation, progress on better services, and progress on vital capital investment.”

Middle income earners

Mr Donohoe’s budget objective to cut taxes for middle income earners was reaffirmed by Taoiseach Leo Varadkar.

Speaking in Ballymahon, Co Longford, at a sod turning ceremony for the construction of a €223 million Center Parcs holiday village, Mr Varadkar said: “Budget decisions have been decided yet, but the first thing we will do is balance the Budget, which will mean for the first time in 10 years we will have balanced the Budget and it’s important we do that and reduce our debt and balance our books.

“In addition to that, we are going to have some tax relief for middle income earners in particular. People in Ireland pay that high rate of income tax on very modest incomes, incomes are at or below the average wage. We want to change that and have fewer people hitting that higher rate of income tax.

“I am conscious we have a confidence and supply agreement with Fianna Fáil and when we put the Budget together we will make sure that it is in line with that agreement.”