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Moving income tax credits and bands will improve take-home pay, says Donohoe

The finance minister says Government will use indexation to up peoples’ take-home pay.

Image: Sam Boal

FINANCE MINISTER PASCHAL Donohoe has said Government hopes to move income tax credits and bands in October’s Budget to improve workers’ take-home pay.

Speaking during Leaders’ Questions, the minister said through tax indexation, “if there is an increase in overall wages to respond to the significant cost-of-living challenge… we simply want to ensure that as much of that increase in overall wages as possible feeds back into the purse and wallet as opposed to it being absorbed into unintentionally higher levels of taxation”.

“That is what we are looking to do,” he said. 

His comments come a day after Tánaiste Leo Varadkar said public servants and those working in the private sector “will see that number at the bottom of the payslip” increase after October’s budget. 

Varadkar has suggested that a third 30% rate of income tax could help middle-income earners.

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.

Donohoe was responding to Labour Leader Ivana Bacik, who said that she is conscious that under the current pay agreement for public sector workers, a 1% pay increase in October with inflation now standing at 8% would effectively amount to a pay cut.

She called for investment in childcare and healthcare to reduce the enormous costs that are coming out of people’s pay packet every week. 

Tax cuts at the expense of public services

“We’re a party of the left, we believe in the need to ensure investment in public services for all and we don’t believe in tax cuts for some at the expense of public services for all and that’s our concern,” she added. 

Donohoe said he believed there could be some common ground between Fine Gael and Labour on this issue, stating that a personal taxation strategy is looking to do ensure that if people get a pay rise this year, that most of it ends up in their pocket, and not in the Government coffers. 

“No more, no less. It is something that will be valued and needed at a time in which the cost-of-living is such challenge and so many are under such pressure,” said Donohoe.

“If you were looking for real wage growth for workers who need wage growth, surely you would support a personal tax approach that simply looks to move income tax credits and bands in line with wage growth in our economy.

“That is what we are looking to do, that if workers, particularly workers, who are on low to middle income, get a wage increase which they need and they deserve, and they will need with the rising cost of living that we are now facing, that they don’t see too much of that absorbed into higher levels of taxation as they earn more. I think there may be more common ground between us on that point,” said Donohoe.

In response to Bacik calling for the same level of ambition that was shown during the pandemic when it came to investment, Donohoe said it’s not open to the Government to  maintain the levels of expenditure levels or borrowing levels shown during Covid. 

“That was a unique period in our public and economic health. It was a unique period that thankfully is coming to an end as the disease goes behind us, even though it’s still present, it’s not posing the fundamental challenge to our society and to our economy that it did in recent years,” he said.

Petrol and diesel costs 

Despite the Budget being four months out, calls have been increasing from both those in and outside Government to take action on the cost-of-living. 

While Sinn Féin has called for a mini-budget during the summer, those in Fine Gael are also looking for earlier action, with Senator Regina Doherty stating yesterday that she wanted to see actions sooner rather than later given the urgency of the crisis people are facing. 

Kerry TD and Deputy Government Chief Whip Brendan Griffin also pushed Donohoe for further petrol and diesel price reductions in the Dáil today. 

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He called for further downward adjustment to fuel taxes as prices at the pumps soar. While the Taoiseach and Tánaiste said it is not good to chase inflation, Griffin said financial resolutions like this should be the new normal in a rapidly evolving situation. 

Griffin said fuel is up at €2.2o at some forecourts.

“Unfortunately, the prices have crept up again. And I think there’s nothing wrong with Government adjusting and adapting as things evolve. And I’m asking, would you bring forward the financial resolutions between here and the summer recess to try to help hard pressed motorists who are really feeling it at the pumps at the moment. It’s very, very expensive for people to get from A to B,” he said.

Donohoe said the reduction in excise already rolled out by Government are among the biggest excise reductions in place across Europe.

He said his focus remains on bringing in more supports in the budget, stating that the budget is the right point at which to do this. However, he said he would take the deputy’s views on board.

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