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Ministers favor widening income tax bands over new 30% rate – The Irish Times

Government Ministers are understood to favor widening income tax bands as a way of easing the tax burden on middle-income earners over a new 30 per cent rate.

The annual Tax Strategy Group (TSG) papers, to be published by the Department of Finance on Wednesday, will set out the advantages and disadvantages of each approach, including the number of taxpayers likely to be impacted, without making explicit recommendations either way.

The introduction of a new 30 per cent rate would benefit more than one million taxpayers in the Republic, an analysis in one of the papers concludes. However, government sources are understood to believe that such a move would involve a substantial upheaval of an already complex tax system.

The proposal to create a new 30 per cent income tax rate was originally raised by Tánaiste Leo Varadkar. In a recent interview with The Irish Times he said taxpayers here pay the highest rate of income tax “at far too modest incomes” and that the issue had been flagged as a concern by companies thinking of investing in Ireland.

By international standards workers here end up paying the higher 40 per cent rate at relatively low rates of income – on anything above €36,800 for a single person.

The tax strategy papers will also assess the cost of indexing welfare payments, tax credits and income tax bands in line with inflation or earnings growth, a move that could benefit up to 1.7 million taxpayers.

Several OECD countries have a tax indexation system linked to wage growth. Such a move, while costly, gives people more certainty that they will be able to keep medical cards, housing subsidies and childcare subsidies even as their income grows.

The TSG papers are published every year in advance of the budget, and are aimed at informing government budgetary policy without being prescriptive.

“The TSG is not a decision-making body and the papers produced by the department are simply a list of options and issues to be considered in the budgetary process,” a Department of Finance spokesperson said.

He said this year’s papers would consider income tax options for Budget 2023, reviews of various property tax reliefs and consider how taxation is supporting climate action targets.

The Government’s proposed €6.7 billion budgetary package includes €1.05 billion in taxation measures, double what was originally planned. Along with a package to address the current cost-of-living squeeze, the budget is also expected to include measures specifically targeting middle-income earners.

Record exchequer figures for July show that the State collected €43.5 billion in tax in the first seven months of the year, €8.3 billion more than in the same period in 2021, potentially giving the Government greater room for maneuver in next month’s fast-tracked budget.

With inflation running at a four-decade high and further energy price hikes on the way, Opposition parties are calling for more measures to address the cost-of-living crisis. However, several groups and agencies, including the Economic and Social Research Institute and the Irish Fiscal Advisory Council, have warned the Government that untargeted measures to address the inflationary squeeze may end up fanning further price growth.

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