Minister for Finance Paschal Donohoe has said any moves to introduce a new 30 per cent tax rate would aim to help people to keep as much of any wage increases as possible.
The Government knows the money in a person’s wallet is not purchasing as much as it used to, so indexation is important as wages go up so people do not end up paying more tax, he said.
Mr Donohoe’s comments come after it was reported the upcoming budget is set to see a landmark tax package for workers. The Government is now pledging a tax package that will benefit almost all employees.
Department of Finance budgetary options papers, which were published on Wednesday, outline how up to two million people could see their take-home pay boosted by indexing tax bands and credits that would cost between €630 million and €1.1 billion annually, depending on the option.
“At a time in which wages are going up we believe we should be doing what we can to help workers keep as much of the money they are earning,” Mr Donohoe told RTÉ Radio’s Morning Ireland. The objective for the Government is to change personal taxation in a way that was affordable, he said. “We want to help.”
People enter higher tax bands when on an average wage compared to other countries, the Minister said, adding a 30 per cent rate would be fairer. However, he cautioned that any tax changes were difficult to implement in a calendar year because of the changes required for employers.
Mr Donohoe said the Government is also looking at the options in relation to increasing rates of social welfare as it wants to help those who are most vulnerable. But such figures could not be pulled out of thin air, he said.
Budgetary options papers outline how core welfare rates could rise by as much as €15 a week in some scenarios — three times last year’s increase — at a cost of €1.1 billion.
“We are looking at what we can do, what is affordable.” The Minister said he had no plans to change the amount available to spend from €6.7 billion, adding: “we will stay inside the parameters.” However, there will be one-off measures in the budget this year that will help with the cost of living, he said.
On the same programme, Mr Donohoe said the department’s budgetary options papers do consider minimum pricing on alcohol as a risk
In January, the Government introduced minimum unit pricing, which enforces a minimum cost of at least 10c on every gramme of alcohol. With the same legislation not currently in place in Northern Ireland, people are travelling across the Border to purchase alcohol — spending up to €3,000 at a time.
“Our papers yesterday do acknowledge this as a risk,” Mr Donohoe said.
“I’ve acknowledged in recent years that any significant change in the price of alcohol within our own country could indeed potentially be a cause of consumption and purchase happening elsewhere.
“At the moment I do not see that risk developing in a significant way, it’s not happening at the moment within our economy but we did acknowledge yesterday that if you get to a point that there’s a very big gap between the North and here in relation to the price of alcohol that could be a trigger for cross-Border shopping.
“That’s always been the case, but I don’t see it happening at the moment.”
Speaking about other budgetary issues, the Ministersaid he understands why people would be calling for additional taxes on the energy sector, but he remains cautious about such a move.
Last week, Sinn Féin, Labour and People Before Profit urged the Government to bring in a windfall tax on energy companies in the wake of a 74 per cent growth in profits at Bord Gáis Energy.
Mr Donohoe told RTÉ Radio’s Morning Ireland the renewable, wind and solar sectors need to be delivering more energy so Ireland and Europe could be more energy Independent and not face the energy security risks that are currently an issue.
“Any sudden change in how those sectors are taxed could undermine that ability to get to that independence at a point in the future, particularly when other forms of energy are being compromised,” he said, adding the focus for now needed to be on additional wind energy sources off Ireland’s shores.
Meanwhile, Social Democrats co-leader Róisín Shortall called for any social welfare increases in the budget to be benchmarked. It should be possible to live life with dignity if on social welfare, she told Morning Ireland.
Róisín Shortall said Government budgetary proposals ‘do nothing’ for people on low incomes. Photograph: Gareth Chaney/Collins Photos
Ms Shortall also said tax cuts were not the best way to go about spending State money. There was a case for index linking to help people across the board and people who receive wage increases to meet the cost of living should not have to pay more tax, she said.
More should be “clawed back” at the top end, Ms Shortall said, explaining that it is not fair that a person on €500,000 would get the same tax break as a person earning €36,800 under the proposed new tax bands. She described such measures as a very expensive way to go about tax reform.
The Tánaiste appeared to be “anti-tax” like UK Conservative Party leaders, according to Ms Shortall.
Taxation was very important, she said, adding: “none of us like paying it, but it pays for public services. The social contract should exist”,
The proposals “do nothing” for people on low incomes, and 20 per cent of the workforce were in that group, she said, adding it is important not to erode the tax base.
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