Budget: Donohoe pledges tax cuts for low and middle income earners

Minister for Finance Paschal Donohoe has given his clearest signal yet that tax cuts in next month’s budget will be targeted at raising the level at which workers start to pay the top rate of tax.

In a speech at the Ibec annual dinner on Thursday night, Mr Donohoe said the Government “will fulfil our commitment to making steady and sustainable progress in reducing the income tax burden for low- and middle-income earners by concentrating on increasing the level at which workers fall into the higher tax bracket.”

The point at which a single person becomes liable for the higher (40 per cent) rate of income tax was changed in the last budget from €33,800 to €34,550.

The Minister also said that the Government would continue the process in future budgets.

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Mr Donohoe said the Government would have to ensure that the taxation system remained competitive with what was on offer in the UK after Brexit.

“We cannot hope to remain competitive if someone on a relatively low income, and who decides to work a few hours’ overtime, has nearly half that extra money taken in tax,” he said.

Too narrow

Mr Donohoe rejected criticisms that Irish workers were paying more tax than they were in 2008, which was contained in a report from the Irish Taxation Institute published earlier this week.

“I do not believe that the tax system – or indeed the approach to regulation, fiscal policy or overall economic management – that prevailed in 2008 is a useful benchmark or indeed one that we would look to return to,” he said.

“As numerous reports and inquiries have shown, the tax base in 2008 was too narrow, there was an overreliance on transaction taxes and excessive levels of tax expenditures that encouraged economic activity that was not in the public interest.”

Risks ahead

In his speech, Mr Donohoe identified several risks that he believed would face the Irish economy next year: Brexit, disruption to world trade, increasing interest rates and threats to the State’s corporation tax regime.

However, he gave an upbeat assessment of the state of the Irish economy, and said the Government was focused on tackling economic and social problems such as housing.

He said the creation of the Land Development Agency, plans for which were announced last week, would see the State “play an active and influential role in the design and development of our urban areas”.

“In applying international best practice in active land management, the [agency] will ensure a more proactive management of the State’s extensive land bank, counterbalancing the boom-bust cycles of development that have in recent decades undermined the country’s economic growth,” he said.