Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

The Deputy's amendments refer to reports on the tapering out of income tax credits at certain incomes and on the introduction of a high-income levy. The income tax reform plan published by my Department in July 2016 examined this issue due to the fact that A Programme for a Partnership Government contained a commitment to consider the removal of the PAYE credit for high earners as part of a medium-term income tax reform plan. It pointed out that a number of technical and policy issues would need to be addressed to achieve a tapered withdrawal of income tax credits, particularly for PAYE employees. The issue was also discussed in my Department's tax strategy group papers on income tax for budgets 2017 to 2020, inclusive.

The significant issue arising with this amendment is that it would have a negative impact on the marginal rate of tax. The tapering out of a tax credit would result in a higher marginal tax rate within the taper zone than would apply at higher income levels.

For example, if the personal tax credit of €1,650 was tapered out at a rate of 5% per €1,000, it would result in a loss of just over 8 cent per additional €1 of income, and the marginal rate within the taper zone would be just over 60%. Once the taper period has expired, at income over €140,000 in this example, the marginal rate would then drop and would revert back to 52%.

Another issue that has been pointed out in previous research is that tax credits and rate bands operate on a cumulative basis, as Revenue issues a revenue payroll notification to the individual's employer, who then uses the information contained in the notification to calculate the tax to be deducted each time a payment is made. If it is known from the beginning of the year that an employee's income will exceed the chosen threshold, then the application of the taper of the credits could be applied from the outset, thereby spreading the tax burden equally over the year. However, where it appears during the course of the year that the employee's income may exceed the chosen threshold, Revenue will need to update the revenue payroll notification to withdraw the relevant credits and this will result in the collection of arrears from the next payment of salary by the employer, resulting in an uneven distribution of their liabilities over the year and an uneven distribution of the yield for the Exchequer.

I am aware that the UK tax system incorporates a personal tax allowance, which is subject to a tapered withdrawal for individuals whose income is in excess of £100,000 per annum.