Creation of 30% tax rate would be a ‘significant’ structural change, Donohoe says

Introducing a 30 per cent rate of tax would be a “significant structural change” to manage during the budget process, Minister for Finance Paschal Donohoe has said.

Speaking at the publication of the Tax Strategy Group papers on Wednesday, which found that such a move could benefit about 35 per cent of tax cases in the country, Mr Donohoe also said that while he did not see the economy sliding into recession this year, grave risks lay ahead next year.

While the Minister emphasised that he would not discuss potential taxation measures before budget day late next month, his comments on the difficulties associated with engineering a new rate of tax come as The Irish Times reported on Wednesday that Ministers favoured widening income tax bands in the budget rather than implementing an entirely new rate.

“It would be a significant structural change, and the Government will just have to consider would we be able to implement this in addition to other options available to deliver the objective that we have,” he said.

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Mr Donohoe said the aim of the budget was to help middle income workers at a time when the cost of living was rising.

Government sources also pointed to the broader benefits of widening the bands, which would see more people benefit, and noted that it was the approach adopted in the programme for government, the document which guides Coalition policy and sets overall goals.

The sources also downplayed the chances of providing a new rate and widening of the bands in tandem. One said that if a 30 per cent rate was pursued, it may have to be done on an incremental basis, further diminishing its benefit this year, as well as adding to the significant logistical weight of putting it in place in time for September’s budget.

Mr Donohoe said that notwithstanding economic headwinds on inflation and global uncertainty, unemployment was at a new low of 4.2 per cent, citing an “exceptionally strong” performance in the jobs market. He said many elements of the tax take now exceeded their pre-pandemic level, pointing to income tax and VAT.

However, he warned there may be “further developments that could influence the ability of our economy to grow, particularly in 2023”.

[ Higher capital gains tax rate options examined for higher earners ]

[ Indexing tax system would boost pay of 2m workers but cost up to €1.1bn a year ]

The Fine Gael TD would not be drawn on how much would be available for in-year cost-of-living measures on budget day, when a package of €6.7 billion is to be announced. However, he strongly defended universal measures – which have been criticised on the grounds that they go to all households, including wealthier ones.

He said there was a “very strong argument still available for broader measures”, with many households who are not in receipt of social welfare payments under pressure. He hinted that any taxation measures would not kick in until next year, saying it was “probably more difficult” to introduce tax changes sooner than usual.

Mr Donohoe would not be drawn on the possibility of moving to help either landlords or renters with new tax measures in the budget.

He said he was “strongly committed” to the need to balance the books in the budget, pointing to the economy’s vulnerability to changes in the wider global outlook, over which Ireland had no influence. He said of a €5 billion exchequer surplus, some €3 billion was down to a boom in corporation tax revenues which may ultimately prove unreliable.