Joe Flaherty (Longford-Westmeath, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

75. To ask the Minister for Finance the proposals he will be bringing forward in relation to income tax over the medium term; and if he will make a statement on the matter. [2994/23]

Cormac Devlin (Dún Laoghaire, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

79. To ask the Minister for Finance his plans to undertake a review of the income tax system; and if he will make a statement on the matter. [3082/23]

Cormac Devlin (Dún Laoghaire, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I want to start by congratulating and wishing my colleague, Deputy McGrath, well in his new role and thanking him for all of the work he did in the Department of Public Expenditure and Reform. I also want to formally congratulate my constituency colleague, Deputy Carroll MacNeill, and wish her well in her new role.

Turning to the question, I would like the Minister to outline his plans to undertake a review of the income tax system here, as committed to in the programme for Government. A Commission on Taxation and Welfare report was published in September of last year, entitled Foundations for the Future, taking a medium-term to long-term view of taxation in this country and I am interested in hearing the Minister's views on same.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank Deputy Devlin for his good wishes. The position is that the programme for Government, Our Shared Future, contains a number of specific commitments relating to income tax. These include the commitment that 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. In addition, the programme states that the earned income tax credit will be equalised with the employee tax credit. It also includes a commitment to increase the home carer tax credit to support stay-at-home parents and those with caring responsibilities.

Significant progress has been made in achieving these commitments. For example, over the last two budgets the Government increased the standard rate cut-off point for single persons by 13.3% from €35,300 to €40,000, with commensurate increases for persons who are married or in civil partnerships. In addition, the main tax credits, namely the personal tax credit, employee tax credit and earned income credit, were increased by around 7.6% or €125 each from €1,650 to €1,775. It is also worth pointing out that the earned income tax credit was equalised with the employee tax credit in 2021. The home carer tax credit was also increased by €100 from €1,600 to €1,700, a 6.3 % increase, in budget 2023.

My Department has begun initial work on developing a medium-term roadmap for personal tax reform, taking account of the recent report of the Commission on Taxation and Welfare, and considering a range of measures across income tax, USC and PRSI, together with other related personal taxation issues. This exercise was signalled in the budget last autumn. I expect that when completed, the work will help inform deliberations relating to a number of aspects of the income tax system in the context of future budgets.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank the Minister and commend him in particular on the work done in relation to the tax credits and the tax bands. The programme for Government commits specifically to developing a circular economy and legislation in that area is being progressed, as the Minister knows. The structural shift to a circular economy should be supported with taxation changes to support labour intensive sectors that underpin the repair of goods, particularly consumer goods, and retrofitting, in addition to the traditional labour intensive sectors such as tourism, hairdressing, and personal services such as home care, which will be needed to support an ageing population. Conversely, VAT and other taxes on IT and automated services should be reviewed to ensure that they are fit for purpose and effective in the modern era. I look forward to hearing the Minister's views on this.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank Deputy Devlin who has raised issues that are very important to the future of our income tax code, including the recognition of the ambition to move to a circular economy and the importance of schemes and supports for retrofitting. He also mentioned specific sectors of our economy.

It is worth highlighting the specific income tax and USC recommendations that were made by the Commission on Taxation and Welfare. This was an enormous body of work and the report is one that we should all take seriously. We must very closely examine the recommendations that the commission made. It recommended that the Government should focus on maintaining the progressivity of the existing personal taxes system. Without further erosion of the income tax or USC, future base-broadening reforms should focus on PRSI and on addressing horizontal equity concerns. To promote equity and sustainability, preferential income tax or USC treatment based on factors such as age or personal characteristics should be phased out, according to the commission. As far as possible, and with limited exceptions, income tax and PRSI charges should be based on income only and different types of income should be treated equally. The commission made a number of other recommendations in relation to cliff edges, the USC, individualisation and other issues as well.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I appreciate the Minister's response and look forward to working with him and his officials over the coming months, particularly in relation to the base reform, PRSI, the tax credit system, USC and the income bands. I am sure we will flesh all of that out over the coming months.