Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank th e Deputy for his question. As he may be aware, I am of the view that a fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said the burden of the income tax system in Ireland is too high. I also said I would seek to reduce it as soon as it was prudent to do so. The identification of the squeezed middle as those earning between €30,000 and €70,000 was an important step.

In the 2015 budget I reduced the top rate of income tax from 41% to 40%. I also extended the standard rate band in which income tax is chargeable at the lower 20% rate by €1,000. These measures ensure all those earning in excess of €32,800 per annum will benefit from the income tax changes in the budget. In addition, I reduced the two lower rates at which the universal social charge, USC, was payable from 2% and 4% to 1.5% and 3.5%, respectively. This ensures people on lower incomes who do not pay income tax also benefit from the budget. Furthermore, I also increased the threshold before which the 7% rate of USC becomes payable to €17,576; as a result, those on the minimum wage will now only be liable to a maximum 3.5% rate of USC. I also retained the exemption from the top rates of USC for medical card holders and those over 70 years with incomes that did not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%.

Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the budget also contained measures to limit the maximum benefit of the tax package to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent as those with more modest incomes. The changes announced in the budget took effect last month and have resulted in a reduced tax bill for all those paying income tax and USC.

Additional information not given on the floor of the House

The tax package announced in the budget is the first stage of a tax reform plan to be undertaken over a number of years to reduce the tax burden, particularly for low and middle-income earners. My Department estimates that a reform plan along these lines over three years will create up to 15,000 jobs when the full effects of the changes have taken hold in the economy. I propose to continue to reform the income tax system in this manner in future budgets, subject to the required economic growth and the consequent fiscal space being available to the Government.

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