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Abolishing tax credits would earn the state €1.7 billion

Going back to the old tax system would earn the state billions, but the new system is fairer says the Finance Minister.

The office of the Revenue Commissioners
The office of the Revenue Commissioners
Image: Sasko Lazarov/Photocall Ireland

THE IRISH EXCHEQUER would be better off by over €300 million a year if tax credits to those earning over €100,000 were done away with, while a wholesale abolition of the system would save almost six times that number.

Finance Minister Michael Noonan revealed the numbers this week in response to a Dáil question from Sinn Féin TD Pearse Doherty, who asked how much the state would save by going back to the tax-free allowance system.

Based on 2013 figures, the Revenue Commissioners estimate that the state would take in an extra €1.7 billion in tax revenue, but Noonan stressed that the current system is more equitable.

“A tax credit system is a fairer and more equitable tax system.

This is because tax credits have the same value to both lower and higher income earners, whereas tax allowances are more beneficial to higher income earners, as they reduce the amount of income which is subject to the higher rate of tax.

Noonan added that any move back to a tax-free allowance scheme would require reductions to be made to allowances, which would lower the effective levels than at present.

Another question from Doherty sought to establish how much extra the State would take in by cutting tax credits for high-earners.

Department of Finance figures show that €170 million could be yielded from those earning between €100,000 and €150,000, €65 million would be made from those earning between €150,001 and €200,000 and an extra €80 million would be earned from those earning over €200,000.

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