Tax changes part of new deal

TAXATION:A SINGLE rate of tax relief on private pension contributions, a "site valuation tax" and the abolition of the Pay-Related Social Insurance (PRSI) ceiling are among the main taxation measures proposed under the renewed Programme for Government.

The agreement between Fianna Fáil and the Green Party also signals that the carbon tax on fuel proposed by the Commission on Taxation will be introduced in the December budget, with the proviso that people “most at risk of fuel poverty” would be protected from the impact of this levy.

The document indicates that the Government will take steps to implement a property tax, but that it may be some time before the tax can be applied.

A “site valuation tax” for non-agricultural land will be introduced once the “necessary valuation and registration process” has been completed, it states.

A proposal that tax relief on pensions should be changed to a single rate of 30 per cent would mean that pensions would cost more for higher-paid workers and would be more attractive for lower-paid workers.

Under the current system, workers who pay income tax at the higher rate of 41 per cent receive tax relief at this rate on their pension contributions. However, lower-income workers only receive tax relief on pension contributions at the standard rate of 20 per cent.

The abolition of the PRSI ceiling, which is currently set at €75,036, would mean that PRSI would become payable on earnings above this amount.

The Programme for Government document states that this would “remove the inequity whereby higher paid employees pay proportionately less of their income for social insurance than low paid employees”.

However, the extra payments for these higher-income earners would be offset by a reduction in the income levy.

The document also states that the Government will “begin the simplification and rationalisation of the various levies into the income tax system” and that this process will begin in 2010.

Since the emergency budget in April, an income levy of 2 per cent has applied to workers earning €15,028-€75,036, while a 4 per cent rate applies to incomes in excess of €75,036. A 6 per cent levy applies to earnings above €174,980.

These levies will be phased out, but the rates of income tax are likely to be increased in their place.

The document makes no specific reference to a third rate of income tax.

The two political parties also promise to “eliminate unnecessary tax reliefs” and, where possible, completely shut down relief schemes that have been closed to new entrants.

Residency rules will be reformed so that those who benefit from living in Ireland are subject to taxation here.

The renewed Programme for Government promises to “introduce a new system for the financing of local government”, including water charges.

The Government renewed its commitment to keeping corporation tax at a rate of 12.5 per cent.