Irish voters typically say that better services and progress on housing are more important to them than lower taxes. But political parties believe that, when it comes down to it, many people vote with their pockets. Here are the key things to look out in the campaign getting under way – and why promises should be met with a sceptical eye.
Income tax bands
A key goal is to appeal to middle-income voters and so promises to increase the income level at which they enter the higher 40 per cent tax rate will feature. This rose from €35,300 to €44,000 over the Government’s term – more than promised by Fianna Fáil in the last campaign, but a good deal less than the move to €50,000 which was in Fine Gael’s 2020 manifesto. The adjustment it promised last time out would have led to gains of almost €3,000 a year to those who earned enough to fully benefit. What was delivered was worth €1,740.
Fine Gael is likely to target this area again, and it will probably feature in most manifestos in some form as the band needs to increase to take account of inflation – otherwise the tax take from incomes edges up.
How this indexing issue is handled is one to watch – Labour has proposed that tax and welfare increase automatically with inflation. The Social Democrats, meanwhile, argue that the focus should be on increasing tax credits rather than widening the band, as this is more beneficial to lower earners.
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Increasing the band is costly. So voters need to realise that to afford this – and particularly to go beyond inflation – the budget numbers will need to remain strong.
An income tax ‘surprise’
Will any party opt for a surprise here, for example a promise of an income tax rate cut? Remember Leo Varadkar’s floating of a middle, 30 per cent rate? Fine Gael would be the most likely to come forward with something in this area.
Universal social charge
This will be a key battleground. The October budget majored on a cut in the main USC rate – which applies on incomes between about €25,000 and €70,000 – from 4 per cent to 3 per cent by Fianna Fáil Minister for Finance Jack Chambers. The party may again focus on the USC in its manifesto.
It will also be interesting to see what Fine Gael does here – its unwise promise in the 2016 manifesto to phase out the USC over five years was replaced in the 2020 document by a commitment to increase the income level at which people become liable to pay the charge from €13,000 to €20,500, taking many lower earners and people on smaller pensions out of the net completely. In the event the €13,000 level has remained, though there has been USC relief.
Sinn Féin, meanwhile, has said its goal would be to ultimately exempt the first €45,000 of income from the charge, starting by exempting the first €30,000 in the first year. We can expect this to be a central point of its election tax plan. Illustrating the fight in the Opposition ranks, Labour’s finance spokesman Ged Nash was highly critical of this – and of the Government’s budget USC cut – pointing out that the cash could have been used for a big expansion of payments to carers, or introducing another level of child benefit to help poorer families.
Inheritance tax
Not a big revenue earner for the exchequer, but apparently a hot-button issue for many voters, despite the generous allowances which mean no tax is paid in many cases, particularly when children inherit from parents. The talk is of a big Fine Gael move here. Last time it proposed a lower capital acquisitions tax (CAT) rate of 20 per cent on amounts up to €585,000 – it may try something similar this time, or propose a big increase in the tax-free cap on inheritances, now €400,000. Another option is to increase these tax-free caps each year for inflation. Fianna Fáil may also enter the auction here. The Commission on Taxation and Welfare recommended a big increase in tax on wealth, but policy is going the other direction. Sinn Féin’s alternative budget proposed an increase in the CAT rate to 36 per cent.
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The hospitality industry continues to lobby for the return of the 9 per cent VAT rate. It looks unlikely, but not impossible, that some parties could put a version of this in their manifestos. It is costly and other businesses – notably retail – would say they should not be left out. So more general measures to try to cut business costs may be more likely.
Tax increases
The parties on the left have a variety of proposals here. Sinn Féin, Labour and the Social Democrats all call for the main tax credits to be phased out on higher incomes – above €100,000 for Sinn Féin and Labour and €108,000 for the Soc Dems – effectively a tax rise for those on higher incomes, and call for other measures to tax pensions and phase out reliefs benefiting higher earners and some businesses. Sinn Féin in addition wants a 3 per cent levy on incomes over €140,000. On the other side of the ledger it promises to stop carbon tax rises and phase out the local property tax over five years.
People Before Profit’s alternative budget for 2025 had a whole range of extra proposed taxes on businesses banks and higher earners.
The bottom line
Experience teaches two things. One is that the specifics of election tax promises often get changed or abandoned in coalition talks, or during a term in government. The other is that any economic setback can change things completely. The medium-term outlook for the public finances outlined recently by the Department of Finance remains strong, but Ireland’s reliance on international growth and the fortunes of a few big US companies is clear. In an uncertain world, nothing should be taken for granted.
