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Proposal for new 30% tax band 'still on the table', but minister says it would be 'challenging'

Minister for Public Expenditure Michael McGrath said he will engage with the Finance Minister Paschal Donohoe on the issue.

Image: Alamy Stock Photo

Updated Aug 15th 2022, 6:41 PM

BRINGING IN A 30% tax band rate in such a short period of time would be “challenging”, Public Expenditure Minister Michael McGrath has told Virgin Media News this evening. 

With budget day just over six weeks away, the details of what will be announced on 27 September will be hammered out over the next month. 

Since Tánaiste Leo Varadkar first floated the idea of a new 30% tax band, the idea has had its critics within Government, namely from those within Fianna Fáil. 

As the budget day approaches, the debate continues. 

McGrath said he will engage with the Finance Minister Paschal Donohoe on the issue, should he propose it. 

McGrath said there is an “equity” issue as the new tax band rate would exclude lower paid workers, if the new band rate is brought in without tax indexation also.

He added that there are also issues relating to pension tax relief. 

Minister of State at the Department of Finance Sean Fleming said today that the new tax band rate “is still on the table”, but added that there are easier ways to put money back into people’s pockets.

The Fianna Fáil TD for Laois-Offaly said there are easier ways to put money back into people’s’ pockets such as through tax indexation. 

Speaking to RTÉ’s Claire Byrne today, Fleming said indexing tax bands and indexing tax credits is a good ways to give money to low income and middle income families. 

He said introducing a new tax band would cause “significant changes” to the taxation system, adding that it is “very complicated” to do at “relatively short notice”.

While he clarified that he was not saying that a new 30% tax band is a non-runner, he said it was a “more complicated way of doing things”, in his view. 

There are “simpler and more straight-forward” ways of giving money back to people, said Fleming.

The new tax band is not something that is mentioned in the programme for Government, he added.  

He also pointed out that it wouldn’t help people on lower-incomes, such as people that are on the 20% tax band and do not reach the 30% band. 

Fleming said he was not “knocking” the idea of a new tax band, adding that it is “still on the table for discussion”, as is the indexation of tax credits.

No decisions made 

A senior source said it was difficult to gauge what way it might go in the budget, as it has not yet been discussed in detail by the party leaders.

As indexing tax credits is in the programme for government, the choice is whether to widen the bands or introducing a new band, they said.

If it is decided to go with a new tax band, it is understood that Revenue has said it would take a few months to operationalise it.

Several Fine Gael Ministers have shown support for a proposed 30% income tax band, including Social Protection Minister Heather Humphreys, who backed their leaders calls for the new band that would benefit around one million people. 

Varadkar has previously said that a third 30% rate of income tax could help middle-income earners, and he asked the Finance Minister Paschal Donohoe to examine whether it could be introduced.

He said there might be a case for having a middle rate of 30% for people on middle incomes so the higher rate of 40% would only kick in for higher earnings.

The 30% rate was one of a number of options outlined in the Tax Strategy Group papers, which were published last week.

The papers outline different options for the government to consider ahead of Budget day at the end of next month.

They indicate that a third income tax band could see up to a million taxpayers take home an extra €500 or €1,000 a year.

Middle and high income earners would see “a direct increase in their net income” if such a measure was introduced, while low and modest income earners “would not directly benefit from this proposal”, the group said.

It also said that it is generally considered that the entry point for the higher rate of income tax in Ireland “is low by international standards”.

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