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

A number of amendments covering a range of income tax issues have been grouped together in this discussion. Regarding the potential for the introduction of a 43% income tax rate on all individuals with incomes in excess of €100,000, I am advised by Revenue that this proposal would yield approximately €495 million in the first year of introduction and €615 million in subsequent years. Approximately 185,000 taxpayer units would be impacted.

As I have stated many times in this House, Ireland has one of the most progressive personal income tax systems in the developed world. By way of example, the top 10% of income earners are expected to contribute approximately 63% of the total income tax and USC collected in 2024. To place this in context, as I said earlier on, the bottom 80% of income earners will pay approximately 21% of the total income tax and USC collected next year.

Introducing a 43% income tax rate on income over €100,000 would increase the top income tax rate by three percentage points and would increase the top marginal rates of tax to 55% for employees and 58% for the self-employed. High marginal tax rates are a clear disincentive to work and could also cause harm to our international competitiveness.

I appreciate that Deputy Shortall is seeking a report on the potential for the introduction of a 43% rate of income tax on all individuals with incomes in excess of €100,000. However, to commission such a report has the potential to introduce an element of uncertainty as regards the future direction of the Government’s income tax policy and could be damaging to job creation and the promotion of foreign direct investment.

With regard to a report evaluating the impact of introducing a system of refundable tax credits as one means of improving the living standards of low-income workers, the Deputy may be interested to note that the matter of refundable tax credits was examined as part of this year’s tax strategy group process in advance of budget 2024. The analysis and findings of the review were published in the income tax TSG paper. The review explored the concept of refundable tax credits, provided an overview of previous relevant studies and of refundable tax credits in other countries and provided an economic analysis of refundable tax credits. Overall, the review identified a number of issues concerning refundable tax credits. Introducing such credits would represent a fundamental change to the personal tax system in Ireland. On the one hand, refundable tax credits could help tackle in-work poverty and increase vertical equity. However, there are already a wide range of existing policies tackling poverty and direct supports are a simpler and more effective means of providing assistance to low-income households.

Additionally, the introduction of refundable tax credits could prove to be very costly and provide relatively little benefit to the majority of individuals, including those working full time and earning at least the national minimum wage because such workers generally fully utilise their tax credits. Tentative estimates provided by Revenue suggest a cost of €1 billion associated with making personal tax credits refundable. Refundable tax credits could also have behavioural impacts on labour supply and reduce the incentive to work or to take on additional work. Implementing a system of refundable tax credits would result in operational and administrative complexities as well as potentially reducing eligibility for some existing supports for low-income households.

Moving on to the matter of increasing the two main tax credits by a further €225 each, I assume that Deputy Shortall is referring to the personal tax credit and the employee tax credit for PAYE workers or earned income credit for self-employed persons. I have been advised by Revenue that this would cost almost €1.1 billion in the first year and €1.27 billion in subsequent years.

Deputy Aindrias Moynihan has not spoken to his amendment at this point. I can address it in a moment if he wishes. However, for the reasons I have outlined, I am not in a position to accept the Deputies' amendments. We have an appropriately progressive income tax system in Ireland. That progressivity has been maintained in budget 2024. The overall assessment of this budget using the ESRI's SWITCH model to look at the distribution impact concluded that the budget was progressive and that those on the lowest incomes gained the most from it. That is the way it should be. That is the combined impact of all of the measures in the budget. I appreciate that, in discussing the Bill, we are discussing the specific taxation changes made in the budget.

Deputies are free to make whatever points they wish in that regard but we got the balance right in the income tax changes in the budget and I do not propose to accept the amendments.

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