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

I thank the Senators for their recommendations Nos 6 and 7. They are seeking reports on the following issues: increasing the standard rate cut-off point to €45,000 and to €50,000, and the introduction of a 30% income tax rate.

The Senators will be aware of the programme for Government commitment, which states:

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.

Budget 2024 included a personal income tax package amounting to €1.3 billion in 2024 and €1.5 billion on a full-year basis. The package was built on three key pillars: changes to USC, tax credits and the standard rate cut-off point.

With regard to USC, the budget included the largest USC package since 2016. The ceiling of the 2% USC rate band will be increased by €2,840, from €22,920 to €25,760.This will ensure that a full-time worker on the minimum wage, who will benefit from the increase in the hourly minimum wage rate, will continue to remain outside the top rates of USC. In addition, the 4.5% rate of USC will be reduced to 4%. I also extended the reduced rate of USC concession for medical card holders for a further two years, until the end of 2025. Additionally, the main tax credits - personal, employee and earned income - are being increased by €100, which equates to a 5.6% annual increase, from €1,775 to €1,875. Furthermore, the home carer tax credit will be increased by €100 to €1,800, the single person child carer credit will be increased by €100 to €1,750 and the incapacitated child tax credit by €200 to €3,500. The standard rate cut-off point will increase, as the Senators said, by €2,000 to €42,000 per annum for single individuals in 2024, with commensurate increases for jointly assessed married couples, civil partnerships and individuals who can avail of the increased band for single parents. When examined on a cumulative basis, the last three budgets have seen a significant increase in the main tax credits and the standard rate cut-off point. The main tax credits have increased by €225 from €1,650 to €1,875, representing an increase of 13.6%, while the standard rate cut-off point has increased by €6,700 from €35,300 to €42,000 for a single individual, an increase of approximately 19%. These changes have been carefully designed to ensure workers do not pay more income tax solely because of inflation, while preserving a broad and stable income tax base to ensure our personal tax system is competitive and resilient.

With regard to the cost of the Senators’ proposals to further increase the standard rate cut-off point, according to the latest available ready reckoner, on a post-budget 2024 basis, Revenue estimates the cost of increasing the standard rate cut-off point by €3,000 to €45,000 at approximately €645 million on a first-year basis and €740 million on a full-year basis, while the cost of increasing the standard rate cut-off point by €8,000 to €50,000 is €1.7 billion and almost €2 billion on a first-year and full-year basis, respectively.

Moving on to the issue of a report on the introduction of a 30% rate of income tax, I must point out that last year, the tax strategy group examined the issue of an intermediate or third rate of income tax. Furthermore, as Senators will be aware, budget 2023 included a commitment to expand on the work of the TSG and to carry out further analysis on the issue of introducing an intermediate or third rate of income tax. This analysis was carried out as part of the personal tax review, which was published on budget day, 10 October. Chapter 7 of the report included a detailed analysis of the issue, outlined policy considerations, operational and implementation issues such as systems design, testing, development, potential timelines and associated costs, options for an intermediate rate of income tax and possible alternative options. Given programme for Government commitments regarding indexation, the significant progress made to date in delivering on these commitments in recent budgets and the fact that the personal tax review addressed the information sought on the introduction of a 30% rate of income tax, the reports suggested by the Senators are not required at this time.