Tax strategy papers: 30% rate could save middle earners €1,000 a year

Tánaiste Leo Varadkar said the 30% tax rate is under consideration as one of many options open to the Government.
Tax strategy papers: 30% rate could save middle earners €1,000 a year

Close to 1 million middle-income earners and couples could save up to €1,000 a year should the Government introduce a new 30 per cent tax rate in the budget.

The Government published its tax strategy papers on Wednesday outlining what options are available for tax changes in Budget 2023.

The papers make clear that middle and higher earners are most likely to benefit from such a tax break, while lower earners would see little or no benefit from it.

A 30 per cent tax band covering income from €36,800 to €46,800 would lead to a tax saving of €1,000 per year for an individual.

The Department of Finance estimates that such a measure would cost €820 million in the first year and €945 million every year after that. It is thought that 35 per cent of taxpayers would benefit.

A second, more limited option is set out in the papers which would see a 30 per cent rate apply to incomes between €36,800 and €41,800.

This would see an individual or a married couple better off by €500 a year. This option would cost €460 million in year one and €525 million every year thereafter.

Currently, any single person earning up to €36,800 a year pays income tax at the basic 20 per cent rate, while any yearly income above that level for single people is taxed at 40 per cent. The entry point for the higher rate of income tax in Ireland is low by international standards.

The current two-rate structure of income tax has been in place since the early 1990s.

The tax strategy papers warn that the “complex change” of creating a new tax band would necessitate “big alterations” to Revenue’s systems as well as changes for payroll providers, “to ensure the feasibility and operability of the new structure”.

Budget options

Speaking to reporters in Dublin on Wednesday, Tánaiste Leo Varadkar said the 30 per cent tax rate is under consideration as one of many options open to the Government.

"The possibility of 30 per cent tax rate, or middle tax rate, for middle-income people is under consideration. And the papers today set out how about a million workers will benefit from that and what the potential costs would be.

"But I think the most important thing to emphasise in relation to the budget, which is now only just over a month away, is that it will contain a substantial income tax package that will reduce income tax for low-income workers, for middle-income workers and higher income workers, but a particular emphasis on middle-income workers.”

Mr Varadkar said the tax package in the budget would be one of the ways the Government will try to lower the cost of living.

He said the package would be "greater than what people would have seen in recent years".

The Tax Strategy Group published a dozen papers relating to tax matters on Wednesday, ahead of the unveiling of Budget 2023 on September 27th.

The Group is not a decision-making body – the papers list the options to be considered as part of the Budgetary process.

The Tax Strategy Group is chaired by the Department of Finance, with membership comprising senior officials and political advisers from various departments.

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