Aindrias Moynihan (Cork North West, Fianna Fail)
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63. To ask the Minister for Finance if he has considered an index-linked approach to taxation; and if he will make a statement on the matter. [9685/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I assume that the Deputy is referring to indexation of the personal income tax system. As the Deputy may be aware, the Programme for Government states that “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, and to ensure there is no increase in the number of people having to pay higher income tax and Universal Social Charge rates”.

Budget 2022 included an income tax package amounting to €520 million, which, within available resources, sought to index the income tax standard rate bands and main personal tax credits. The single income tax rate band was increased by 4.2 per cent from €35,300 to €36,800 for the 2022 tax year, with commensurate increases for persons who are married/in civil partnerships. The main tax credits, personal tax credits, employee tax credit and earned income credit, were also increased by just over 3 per cent from €1,650 to €1,700 for the 2022 tax year. This will provide a real benefit to all individuals who pay tax by reducing their tax liability and will ensure that some low and part time workers will remain outside income tax net.

The 2% rate band ceiling for USC was also increased in line with the increase in the national minimum wage to ensure that a full-time adult worker who benefits from the increase in the hourly minimum wage rate will remain outside the top rates of USC.

Having regard to the fiscal demands and pressures facing the State, it was not possible to index all elements of the personal income tax system nor was it possible to fully index tax credits and standard rate tax bands in line with expected earnings growth and remain within the fiscal parameters. However, the tax changes introduced in Budget 2022, will benefit all income earners who pay income tax.

I am aware that the Oireachtas Committee on Budgetary Oversight is currently undertaking work in relation to indexation of the taxation and social protection systems, and that my officials recently attended the Committee to assist the Members with their work in this regard. I understand that one of the key points to emerge from presentations made to the Committee is that, historically, changes to tax and welfare parameters have, on average, kept pace with earnings notwithstanding that we have not had in place a system of automatic indexation.