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

Afair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high, that it is acting as a disincentive for work and investment in Ireland and that I would seek to reduce it as soon as it was prudent to do so.

In the programme for a partnership Government, there is a commitment to ask the Oireachtas to continue to phase out the USC as part of a wider medium-term income tax reform plan that keeps the tax base broad, reduces excessive tax rates for middle income earners and limits the benefits for high earners. Reductions will be introduced on a fair basis with an emphasis on low and middle income earners.

As outlined in the programme for a partnership Government, the reductions in personal tax rates, such as the phasing out of the USC, needed to reward work and support enterprise and employment will be funded largely through: extra revenues from not indexing personal tax credits and bands; the removal of PAYE tax credit for high earners and other measures to ensure the tax system remains fair and progressive; higher excise duties on cigarettes and increased enforcement and sanctions on the illegal importation and sale of cigarettes; increased enforcement and sanctions on fuel laundering; a new tax on sugar sweetened drinks; and improving tax compliance.

The medium-term income tax reform plan is to be published for consultation with the Oireachtas committee on finance in July or August and will be put to the Oireachtas for consideration and approval in October. The plan is being developed over the next number of weeks and, as such, the expected cost is not yet finalised. The Revenue Commissioners have published a ready reckoner on their website, which provides estimates of costings for various tax changes. For example, the full year cost of abolishing the 1% USC rate is €237 million, while the full year cost of reducing the 5.5% USC rate to 4.5% is €348 million.

Additional information not given on the floor of the House

The income tax reform plan will aim to support job creation and reward work which is a key driver of growth and prosperity in the economy. In developing the plan, available resources will be a key consideration along with safeguarding the economic stability of the public finances and the wider economy.

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