Carbon tax revenue to be spent on tax credits and welfare, Varadkar says

Taoiseach Leo Varadkar has said he wants all revenue gathered from any increases in carbon tax to go back to people as tax credits and welfare payments, in addition to his promise to increase the top rate tax threshold to €50,000 over the next five years.

Mr Varadkar announced at the Fine Gael ardfheis at the weekend that his party would increase the threshold at which people hit the higher rate of income tax to €50,000 over five years.

In an indication of the next general election debate, Fianna Fáil yesterday said its manifesto would major on spending commitments and would not be built around big tax cuts.

Michael McGrath, the party’s finance spokesman, said Mr Varadkar’s promise to raise the threshold at which people hit the higher 40 per cent tax bracket to €50,000 over five years should be taken with a pinch of salt.

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The Department of Finance says such a move will cost €600 million per year which, based on current estimates, is all that will be available for a package of tax cuts for the next five budgets.

The past two years have seen the Government use some tax increases, such as on stamp duty on commercial property and restoring the hospitality VAT rate to 13.5 per cent, to increase the amount of money available for spending increases and tax cuts.

Tax threshold

Mr Varadkar earlier this week said the €600 million per year move to increase the threshold at which people hit the higher rate of income tax – the 40 per cent rate will apply on incomes above €35,300 from next year – will not be the only tax cut Fine Gael will bring in if returned to power.

“We propose to continue to increase tax credits and anyone who pays income tax would benefit from that,” he said. “We want equalisation for the self-employed. We are getting there already but we are not there yet. And we want to make sure that we continue to recognise the role of homemakers through the homemaker’s tax credit. And then, on the other side, we will have revenue-raising measures as well, for example carbon tax.”

The Taoiseach has faced calls in recent days to detail his income tax announcement, as well as how he intends to roll out a carbon tax. He told the Dáil yesterday that carbon tax could increase from its current level of €20 per tonne to €80 per tonne by 2030. He confirmed it would be used for further tax and welfare measures.

Yield

It is estimated that a €5 per tonne increase would yield €100 million for the exchequer but the Taoiseach said "any revenues" should be spent on tax credits and welfare increases, similar to a model being rolled out in Canada. This was also supported in the Dáil yesterday by Green Party leader Eamon Ryan.

“If we are going to increase carbon taxes, which we need to do if we are serious about reducing emissions, we should follow the model being pursued in Canada, where the money is given back to people in the form of tax credits and welfare,” Mr Varadkar told the Dáil.

In an indication of the shape of the next election debate, Mr McGrath insisted the Fianna Fáil emphasis would remain on “prioritising public services, dealing with the really acute pressures that are there across a whole range of areas”.

“Tax will have a place but is not going to be the overarching priority around which we build everything else,” he said. “That seems to be the way Fine Gael want to do it, it is not the way we want to do it.”

The Fine Gael parliamentary party last night discussed the new tax plan.

Mr Varadkar expressed annoyance that a review of flat rate annual tax allowances announced in recent days had caused controversy. Sources at the meeting said the Taoiseach said “Revenue didn’t do us any favours”.