Mairead Farrell (Galway West, Sinn Fein) | Oireachtas source

I do not know who is happier about that: me or the Vice Chairman.

I move amendment No. 19:

In page 20, between lines 25 and 26, to insert the following: “Report on tapering out of income tax credits

16.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on tapering out income tax credits for incomes between €100,000 and €140,000 at a rate of 2.5 per cent for each €1,000 earned.”.

Even before the pandemic, we had an ageing population and a potential over-reliance on corporation tax receipts and an inevitable decline in motor tax revenue combined to make the need for future tax rises likely. Emerging from the pandemic, it is clearer than ever before we need a more agile and responsive State and a stronger social safety net, a health service that works, and a public childcare option for parents that is genuinely affordable. This can only be done through an increase in tax revenue in the form of additional taxation or less in the way of tax expenditure. The Commission on Taxation and Welfare will examine these options, as the Economic and Social Research Institute, ESRI, has done, but the programme for Government all but rules out additional revenue measures other than behavioural tax measures, the purpose of which, on the face of it, is not for revenue generation.

These amendments call for the examination of measures to increase revenue through changes to the income tax system, namely, the tapering of tax credits on individual incomes in excess of €100,000 and the introduction of a solidarity levy on individual incomes of approximately €140,000. We had quite a conversation on the need for a solidarity levy earlier on and I will not rehash that. However, it should be noted that in 2022, the effective tax rate on a full-rate PRSI individual income of €100,000 will be 38.1%, compared with 38.5% in 2021 and 41.1% in 2013, and the effective tax rate on a full-rate PRSI individual income of €120,000 will be 40.4%, compared with 40.7% in 2021 and 42.9% in 2014. Also in 2022, the effective tax rate on a full-rate PRSI individual income of €150,000 will be 42.7%, compared with 43% in 2021.

Tapering tax credits at a rate of 2.5% on individual incomes above €100,000 and introducing a 3% solidarity tax on a portion of individual incomes above €140,000 would not change the effective tax rate on a full-rate PRSI individual income of €100,000. It would increase the effective tax rate on a full-rate PRSI individual income of €120,000 to 41.8% and would increase the effective tax rate on a full-rate PRSI individual income of €150,000 to 45.1%. Withdrawing PAYE earned income tax credits at the previously proposed rate of 5% from those with taxable income above €100,000 would create an effective rate of 64.2% between €100,000 and €120,000.

The British tax system incorporates a personal tax allowance, which is subject to a tapered withdrawal for individual incomes in excess of £100,000 per annum. In this context, it is worth noting a tax allowance allows relief at a taxpayer's marginal rate, whereas the PAYE earned income tax credit is a standard rate tax credit, and the British allowance is reduced by £1 for every £2 earned above this limit, tapering out once income reaches £123,000.

That £100,000 threshold was chosen as all individuals with income above that level were already obliged to file a tax return each year and this facilitated the operation of the taper. By contrast, there is not a similar liability to file a tax return based on income level in this State at present and that would likely need to be reviewed if the policy of tapering the credits was to be pursued. We have had long conversations earlier about solidarity taxes and taxes in that regard, so in the interest of timing and for all committee members and the Vice Chairman, I will not rehash that.