Seán Kyne (Galway West, Fine Gael)
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16. To ask the Minister for Finance if, notwithstanding the very welcome tax reductions being implemented in the Finance Bill including the reduction in the different universal social charge bands, the top rate of tax and the increase in the standard rate tax band, further tax reduction measures, with particular reference to further raising the point at which a person commences paying the top rate of tax, may be considered and implemented sooner than the next scheduled budget should the State's financial position continue to improve; and if he will make a statement on the matter. [45971/14]

Michael Noonan (Limerick City, Fine Gael)
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I thank the Deputy for acknowledging and welcoming the changes introduced in the recent Budget. I have long said that the burden of the income tax system in Ireland is too high and that I would seek to reduce it as soon as it was prudent to do so.

The improvement in the public finances coupled within increased economic growth and rising employment which have followed from our prudent management of the economy has allowed me to make good on our commitment to ease the burden of taxation.

The reduction in the higher rate of income tax from 41% to 40%, the extension of the standard rate band at which people begin to pay the higher rate of income tax, and the changes to the USC rates will take effect from next month onwards. The effect of these measures will see all those who currently pay income tax and or USC receive an increase in their take home pay.

As I said on Budget Day and since, if the economic and fiscal space allow, we will continue with this approach to personal taxation in subsequent Budgets.

However, on the matter of further tax reductions prior to next year's Budget, the Revenue Commissioners have indicated that there would be significant administrative difficulties in making changes to tax rates or bands mid-year.  The last mid-year change in a rate band was when the income levy was introduced by the previous Government in 2009.  This required Revenue to calculate a "Composite rate" made up of percentages of the rates before and after the changeover date which was applied on review.   A composite rate has serious implications for the operation of the cumulative system of deduction under PAYE.  It introduces additional complexity to the reconciliation of tax deducted throughout the year with the end of year P35.  This can lead to significant underpayments where employers fail to implement on time and this leads to collection issues in the subsequent year.

It would also create problems for payroll operators, impacting software providers and those in smaller businesses where manual payroll systems are used, thus adding an unnecessary administrative burden to business.

A change like this could also incentivise income shifting as those taxpayers who could do so, may seek to ensure that the more beneficial rates of tax are applied to their income, depending on when the tax is paid.    

Finally, a mid-year change to the standard rate band would require the passage of a money bill by the Dáil. 

It is important to note however, that the income tax measures introduced in Budget 2015 are the first stage of a three-year plan to progressively reduce the marginal tax rate on low and middle income earners in a manner that maintains the highly progressive nature of the Irish tax system.