Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

The Deputy’s request for a report to be included in the summer economic statement setting out the estimated cost to the Exchequer of adjusting income tax rate bands, tax credits and allowances and social welfare benefits and allowances to reflect any changes in the CSO’s all-items consumer price index numbers is a broad proposal and extends beyond my direct remit as Minister for Finance. This is because the request relating to indexation of social welfare benefits and allowances is a matter for the Minister for Public Expenditure, National Development Plan Delivery and Reform and the Minister for Social Protection.

In relation to indexation of the tax system, the Deputy will be aware of the programme for Government commitment:

From Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be index linked to earnings. This will be done to prevent an increase in the real burden of income tax, to prevent more low-income workers being taken into the tax net because of no changes to the tax system and to ensure there is no increase in the number of people having to pay higher income tax and USC rates.

Significant progress has been made in delivering on this commitment. Budget 2024 was the third consecutive year with a substantial tax package that indexed tax credits and bands within the fiscal resources available. For example, in cumulative terms, the main personal tax credits have been increased by €225 from €1,650 to €1,875. The standard rate cut-off point has been increased by €6,700 from €35,300 to €42,000 for single persons. These changes have been carefully designed to ensure workers do not find themselves in a position where they pay more income tax solely because of wage growth inflation, while preserving a broad and stable income tax base to ensure our personal tax system is both competitive and resilient.

The Deputy may be aware that the personal tax review was published on budget day, which included a detailed analysis of indexation of the personal tax system in chapter 6. The report set out background information on indexation and the position in other jurisdictions, as well as options for indexation, such as indexation in line with wage growth, headline inflation and core inflation. Last year, information on indexing the tax system was also provided in the income tax-tax strategy group, TSG, paper. The costs utilised in these publications were taken from the Revenue Commissioner’s ready reckoner that specifically includes a cost for indexation of the personal tax system. I understand that the TSG paper on social protection-related issues may include similar potential budgetary options for consideration.

The information requested by the Deputy in relation to indexation of the tax system is already addressed in the personal tax review or the income tax-TSG paper. This is a practice that I will ask the Department of Finance to continue to consider as part of future reports, such as the income tax-TSG paper. As I have stated, indexation of the social welfare system is a matter for my Government colleagues, the Ministers, Deputies Donohoe and Humphreys. Therefore, I am not in a position to accept the amendment.