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

It is a programme for Government commitment to look to bring in indexation of income tax rates and social welfare payments budget by budget. I think the case for indexation is well understood from a social welfare point of view, but it tends to be less appreciated in respect of income tax. The fact is that if an effort is not made to move the entry point into higher rates of income tax year by year, as wages in the economy grow, people working an extra hour of overtime, who might get a wage increase, lose far more of that than they would expect to our tax code. If I had not made the changes I have made in recent years to the standard rate cut-off point, that is, the point at which one pays the higher rate of income tax, I have no doubt but that I would be accused of bringing in stealth taxes and not allowing people to keep a fair share of the income they earn with their own hands and their own skills.

As for whether I have any plans to make it automatic, I do not because I strongly believe it should always be the prerogative of the Government and the Ministers for Finance and Social Protection to decide what to do on budget day. In an environment in which not so long ago, we were at far lower levels of inflation than we are now, the changes that would happen if we were committed to automatic indexation, particularly of social welfare, would be of such a low level that it would undermine the legitimacy of trying to carry out indexation in the first instance. That is why I believe the way in which it should be done is that the Department of Finance produces its forecast on what will happen with prices and the income within the economy in a given year, and the Government budget by budget tries to respond back to that.