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

I thank Deputy Lawless. It is worth acknowledging that we are implementing the agreed position of the three parties in government. We negotiated a programme for government that provides for indexation of credits and bands as earnings have begun to grow following Covid. We have made significant progress on tax credits. Increasing credits results in a fair distribution of the benefit. We have also increased the entry point to the marginal rate and made changes to the USC. These are the three key pillars.

Next year, we expect incomes to rise for many, perhaps by 3%, 4% or 5%. We have earnings growth in the private sector and discussions about to get under way on the possibility of a public sector pay agreement. In the absence of making changes to the income tax system, not only would people pay more tax as their earnings grew but their effective rate of tax would increase. The case is often made in the House that there should be no income tax reductions in the budget. In many respects, not to do so would result in an increase in real terms in the burden of tax. We believe this would be fundamentally unfair. That is why we did the best we could with the resources available to bring forward a fair and balanced package that spreads the benefit of the gains across the income levels, while recognising we have a highly progressive income tax system in Ireland. We will continue to maintain and protect this progressivity. It is an important feature of our system.

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