Hopes for 30% income tax rate fade ahead of Budget 2023

The Coalition is playing down proposals for a new 30 per cent rate of income tax over concerns about fairness and the impact it may have on pensions.

The idea for the new rate was first mooted by Tánaiste Leo Varadkar in a speech to the Institute of International and European Affairs (IIEA) in March.

The Irish Times reported this weekend that there was strong opposition to the suggestion from within the Green Party, with sources branding it impractical and not feasible.

On Monday, a Fine Gael source said it was “never the be all or end all” while Fianna Fáil Minister for Public Expenditure Michael McGrath said it would be “extremely challenging” to have a new tax band in place by the end of September.

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Fianna Fáil Minister of State in the Department of Finance Sean Fleming also raised concerns about the impact that the new rate would have on pensions.

Amid reports of tensions within the Coalition over the proposal, which was included in tax option papers produced for the Government by officials last week, a Fine Gael source said the “most important thing” was the outcome for taxpayers.

[ Green Party among those opposed to 30% income tax rate proposal for budget ]

[ Cliff Taylor: It is time to kill off the idea of a new 30% income tax rate ]

“We believe that work should pay more and the people should be able to keep more of what they earn. The average earner on €37,000 a year or more, who is getting a pay rise this year will lose half of it in income tax, USC [universal social charge] and PRSI. That’s not fair,” they said.

“We secured a commitment in the programme for government to reduce income taxes and reduce this unfairness. The income tax reduction in the last budget is worth more than €700 a year to the average two-income couple.

Tax credits

“We want a bigger tax package this year to reflect the rising cost of living and rising wages. How this will be done has yet to be decided.

“There are a number of options including increasing tax credits, widening the bands, a new tax band or a combination of these. The most important thing is the outcome, which is more take-home pay for workers and middle-income people to help with the cost of living.”

It is instead considered more likely that the Government will go ahead with plans to index tax bands and credits, linking them potentially to wage growth rather than overall inflation.

Indexing tax bands and credits would boost the take-home pay of up to two million taxpayers in the Republic while costing the Government between €630 million and €1.1 billion a year to implement, tax papers said.

The Coalition is also considering potentially extending the temporary reduction in fuel-related excise duties of 20 cent per litre of petrol and 15 cent per litre of diesel amid concerns about a rush on the pumps before budget day, which could destabilise supplies.

The reductions were due to finish at the end of August but have been extended until budget day on September 27th, at an additional cost of about €80 million.

It is understood that industry bodies have sought clarity from the Government in recent meetings around whether the cuts will be continued beyond budget day, citing concerns about energy supplies. One source said that there was anxiety that a sudden end to the reduction on budget day could result in a rush to the pumps which could create a demand-led shock.