Lucinda Creighton (Dublin South East, Renua Ireland)
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95. To ask the Minister for Finance if he will consider a report (details supplied) in the context of introducing a 23% flat tax rate; and if he will make a statement on the matter. [1718/16]

Michael Noonan (Limerick City, Fine Gael)
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The report referenced by the Deputy, a KPMG report published in September 2015, contains a high-level discussion of possible benefits of a flat tax policy.  It estimates that a flat rate of income tax of 23%, with no tax credits or basic income allowances, would result in a decrease in tax receipts of some €257 million per annum when compared to the net yield under the existing income tax system at that time. The report does not specify the methodology used to calculate this figure, however I would note that the figures differ from estimates by the Revenue Commissioners in response to PQ number 51 of 13 October 2015, indicating that replacement of the income tax structure (including the Universal Social Charge) with a flat rate of 23% on all incomes and removing all tax credits would result in an increase in yield in the order of approximately €672 million in a full year.

It should also be noted that the introduction of a flat tax of this nature, with no tax credits or basic allowances, would result in significant tax increases for lower income earners.  The report also notes that a flat tax system would normally incorporate an Earned Income Tax Credit (EITC) for all income earners, in order to protect those on lower incomes, and suggests that a growth-driven flat tax system would include an EITC.  The report estimates that a break even Exchequer yield for a flat tax system incorporating a graduated EITC would be up to 29%.  In this context, it is worth noting that the average effective tax rate for the highest 10% of income earners under the current tax system is approximately 31% (calculated by the Revenue Commissioners, based on estimates for 2016, using the actual data for the year 2013 (the latest year for which data are available) adjusted as necessary for income, self-employment and employment trends in the interim).

The report further posits that the increase in net incomes for higher earners could have consequential increases in exchequer revenues of €493.5 million per annum, through economic growth associated with attracting high net worth individuals to remain in, or relocate to, Ireland.

I have said on many occasions that individuals in Ireland start to pay the higher rate of tax at too low an income level, and that I would seek to address this issue when the public finances would allow me to do so.  The changes I introduced the last two Budgets have begun the process of reducing the burden of income taxes for all taxpayers, not just those on higher incomes.  Furthermore, Budgets 2015 and 2016 have reduced the top tax rate on incomes of up to €70,044 from 52% to 49.5%, so in 2016 this rate has now fallen below 50% for the first time since supplementary Budget in 2009.  This will help to support consumer confidence, particularly for middle income earners who have borne the greater share of the cost of the economic downturn, and help to stimulate economic growth.  I have also stated my belief that the top rate of tax on all income should not exceed 50%, and that I would continue to work towards this objective in future Budgets, subject to being returned to Government in the next election.