Fine Gael is moving to drop a proposal that would see lower-income families repaid up to €2,400 in tax every year from being included as a key element of its general election campaign.
The policy of allowing the Revenue Commissioners refund unused tax credits to individuals earning below €16,500, or couples earning €33,300, a year had been detailed in internal documents discussing Government and party policy.
The move has been advocated by groups such as Social Justice Ireland and was being considered by senior Fine Gael figures as a way of reducing tax for lower-income earners.
Minister for Finance Paschal Donohoe, however, has now indicated that the policy would be difficult to implement.
Promise
Freedom of Information documents released in recent weeks show such a proposal was discussed before Taoiseach Leo Varadkar made a separate tax promise at last year's Fine Gael ardfheis.
In the weeks leading up to that ardfheis, staff from the offices of Mr Varadkar and Mr Donohoe discussed various tax policy plans.
Officials in the Department of Finance were asked to draw up details of how to increase the level at which people hit the higher 40 per cent rate of income tax to €50,000, announced by Mr Varadkar at the party event; how to bring the earned income tax credit for the self-employed and the home carer tax credit, increased in recent budgets, up to the same level as the €1,650 tax credit available for PAYE workers; and how to introduce the unused tax credit refund.
If a low-income worker does not earn enough to use up their full allocation of tax credits, they would not benefit from any increases to those credits. Refunding the unused credits would see the Revenue repay eligible workers at the end of the tax year.
Mr Donohoe, however, is now cool on the idea and says it would be difficult to introduce.
‘Huge difficulty’
“This was a matter I was looking at but the Freedom of Information request and the documents also pointed to the huge difficulty in actually implementing this,” he said.
The Dublin Central TD added he has been working with officials in his department over the past year and half on the topic but said it "has always been very clear to me that moving to refundable tax credits" would present "really, really, very significant difficulties in actually practically implementing that policy".
“Which means I would be quite careful about saying this is a way in which we can ensure that income growth does not translate into high marginal tax rates for people on low income.”
Sources said Fine Gael is now likely to examine other measures of reducing taxes for lower-income earners, such as targeted reductions in the Universal Social Charge.