Government Group Consider Changes to Personal Tax System

On Wednesday, the Government's Tax Strategy Group (TSG) published a series of papers which set out options for various taxation measures ahead of next month's Budget.  

In the paper dealing with income tax, the TSG examined the possibility of full and partial tax indexation as a means to inflation-proof the tax system. It also examined the possibility of introducing a third rate of income tax to benefit middle income earners.  

Indexing the tax system would involve adjusting tax credits and tax rate bands in response to inflation or wage growth. The paper noted that the aim of tax indexation is to avoid a person’s income being driven into a higher tax bracket.  

The paper calculated that indexing the income tax system at a rate of 3 percent would cost the exchequer €630 million a year while indexing at a rate of 4 percent would cost €845 million a year. The move would benefit 2 million people or 72 percent of tax payers, however the indexation rates are well below the current level of inflation. 

The group also assessed the partial indexation of bands via a €1,500, €2,000 and €3,000 hike to the single income tax standard rate band. This would cost between €585 million and €1.14 billion a year, and could benefit 66 percent of taxpayers. 

The third measure under consideration for altering Ireland’s income tax system is the introduction of a new 30 percent tax rate. If this rate was applied to income between €36,800 and €41,800 the measure would cost the exchequer approximately €525 million a year while a 30 per cent rate on incomes between €36,800 and €46,800 would cost up to €945 million per year.  

It is understood that the Government is currently favouring a widening or indexing of the tax bands as it believes the addition of a new 30 percent tax rate would add further complexity to an already complex tax system.  

AmCham has and will continue to call for a widening of the current income tax brackets. AmCham has also called for the Government not to increase personal tax burdens for the lifetime of the administration and to develop a roadmap to reduce the burden to match international standards.  

Other areas examined by the TSG include, property tax, social protection, corporation tax and climate action and tax. 

If you would like to engage with AmCham on tax related topics, please contact Colm O’Callaghan, Head of Public Affairs and Advocacy at c.ocallaghan@amcham.ie.