Seanad debates

Tuesday, 14 December 2021

Finance Bill 2021: Committee and Remaining Stages

 

10:30 am

Photo of Paul GavanPaul Gavan (Sinn Fein) | Oireachtas source

I move recommendation No. 4:

In page 20, between lines 28 and 29, to insert the following:

“Report on tapering out of income tax credits

16.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on tapering out income tax credits for incomes between €100,000 and €140,000 at a rate of 2.5 per cent for each €1,000 earned.”.

Even before the pandemic an ageing population, potential over-reliance on corporation tax receipts and an inevitable decline in motor tax revenues combined to make the need for future tax rises likely. Emerging from the pandemic it is clear as never before that we need a more agile and responsive State, a stronger social safety net, a health service that works and a public childcare option for parents that is genuinely affordable. This can only be done through an increase in tax revenue in the form of additional taxation or less in the way of tax expenditure. The Commission on Taxation and Welfare will examine these options as the ESRI has done but the programme for Government all but rules out additional revenue measures other than behavioural tax measures the purpose of which, on the face of it, is not for revenue generation.

These recommendations call for the examination of measures to increase revenue through changes to the income tax system first, by tapering of tax credits on individual incomes in excess of €100,000 and, second, the introduction of a solidarity levy on individual incomes above €140,000.

In 2022 the effective tax rate on a full rate PRSI individual income of €100,000 will be 38.1% compared with 38.5% in 2021 and 41.1% in 2014. In 2022, the effective tax rate on a full rate PRSI individual income of €120,000 will be 40.4% compared with 40.7% in 2021 and 42.9% in 2014. In 2022, the effective tax rate on a full rate PRSI individual income of €150,000 will be 42.7% compared with 43% in 2021. We can see the direction of travel.

Tapering tax credits at a rate of 2.5% on individual incomes above €100,000 and introducing a 3% solidarity tax on portions of individual incomes above €140,000 would not change the effective tax rate on a full rate PRSI individual income of €100,000 but it would increase the effective tax rate on full rate PRSI individual income of €120,000 to 41.8%. It would increase the effective tax rate of a full rate PRSI individual income of €150,000 to 45.1%. Withdrawing PAYE and earned income tax credits at the previously proposed rate of 5% from those with taxable income above €100,000 would create an effective rate of 64.2% between €100,000 and €120,000 per year.

The British tax system incorporates a personal tax allowance which is subject to a tapered withdrawal for individuals whose income is in excess of £100,000 per annum. In this context it is worth noting that the tax allowance allows relief at a taxpayer's marginal rate whereas the PAYE and earned income credits are standard rate tax credits. The allowance is reduced by £1 for every £2 earned above this limit, tapering out in the 2017-2018 tax year once income reaches £123,000. The £100,000 threshold was chosen as all individuals with income above that level were already obliged to file a tax return each year. This facilitated the operation of the taper. By contrast there is no similar liability to file a tax return based on income level in Ireland at present. That would likely need to be reviewed were the policy of tapering the credits to be pursued. There is real merit in calling for these reports and I hope the Minister will support the recommendations.

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