Thursday, 5 March 2020
Department of Finance
109. To ask the Minister for Finance when the current tax credit for individuals was set at €1,650 and the employment tax credit was set at €1,650; the cumulative rate of inflation since that date; and if he will make a statement on the matter. [3867/20]
The value of both the personal and employee tax credits has been set at €1,650 since the 2011 tax year following the implementation of Finance Act 2011.
The cumulative rate of consumer price inflation (based on the Harmonised Index of Consumer Price measure) from 2011 to end 2019 was 5.2 per cent. Over the same period, between 2011 and 2018, the level of (non-agricultural) hourly earnings as measured by CSO Earnings and Labour Costs survey grew by 12.3 per cent.
No Government in this jurisdiction has followed a policy of strict indexation of tax bands and/or tax credits, as it would undermine the flexibility to adapt spending as necessary to the level of resources available to the Government in any given Budget. It would also restrict the ability of the Government to target resources where the need is greatest.
General increases to tax credits result in an increase in level of income that is effectively exempt from income tax. It is estimated that in 2020, 28% of taxpayers will be exempt from income tax, including USC. It may not be prudent to increase this number further through increases in tax credits that would narrow the income tax base. During the financial crisis, our income tax base narrowed to the point where 45% of potential taxpayers were exempt from income tax. This was unsustainable and placed a disproportionate burden on those who were within the tax net to provide the tax revenues needed for public services and social supports.