Official Report Does Not Consider €1,000 Income Tax Break for Middle-Income Earners
An official report on potential changes to income tax in the upcoming Budget does not explore the possibility of providing middle-income earners with a €1,000 income tax break. The controversy arose in May when three Fine Gael junior ministers expressed their desire to see tax relief of over €1,000 for full-time workers earning an average wage of €52,000. Ministers of State Jennifer Carroll MacNeill, Martin Heydon, and Peter Burke highlighted this proposal in an article published in the ‘Irish Independent’, alongside other suggestions for utilizing expected budget surpluses in the coming years. However, the options outlined in a new report by the Tax Strategy Group (TSG), released by the Department of Finance, do not take into account reducing the income tax burden for middle-income workers by €1,000. This suggests that Finance Minister Michael McGrath may be stepping back from the idea of a full €1,000 tax break for this group.
The Tax Strategy Group, chaired by the Department of Finance, consists of senior officials and advisors from various governmental departments and offices. The group publishes papers that outline budget options and estimate the associated costs. The recently released income tax paper examines two options for increasing the standard rate income tax band. One option is to raise the band by €1,000, while the other is to increase it by €1,500. By adjusting the standard rate band by €1,500, individuals would be allowed to earn an additional €1,500 at the 20% tax rate before moving into the 40% bracket. However, increasing the standard rate tax band by €1,500 would only result in an income tax reduction of approximately €300 per year for single individuals, married one-earner couples, or two-earner couples.
In last year’s Budget, the standard rate band was increased by €3,200, meaning individuals can now earn €40,000 before entering the higher 40% income tax rate. To achieve an income tax break of around €1,000, the standard rate tax band would need to be increased by approximately €4,000 in October, in addition to a €100 increase in tax credits. Last year, tax credits were also increased by €75, with the personal, employee, and earned income tax credits each rising by €75. However, the Tax Strategy Group’s income tax paper for this year’s Budget only considers increasing the tax credits by €50 each. This would result in a reduction of only €100 per year for the average worker, according to Marian Ryan, the consumer tax manager at Taxback.com.
The income tax paper also explores the option of introducing refundable tax credits, which would be particularly beneficial for low-income workers. Under this system, any unused portion of the tax credit would be “refunded” to the taxpayer. However, the Tax Strategy Group paper advises against implementing this plan, citing concerns that it may be overly complex to claim. The paper suggests that the tax system may not be the most effective means of providing funds to those in need. Social Justice Ireland, on the other hand, argues that refundable tax credits are crucial in assisting the working poor.