Tax on alcohol and cigarettes set to remain untouched in budget but welfare battle looms

Taxes on alcohol and cigarettes look set to go untouched in next month’s budget, while a proposal to increase welfare payments by up to €15 a week is facing significant pushback.

Government figures indicated that a swathe of potential tax-relief measures for landlords are also under consideration along with the reintroduction of a tax credit for people living in rented accommodation.

The Irish Times has learned that there has been major resistance to suggestions to delay the proposed hike in carbon tax until next year amid fears of a Green Party rebellion. One source said that it is already hardwired into law and “there would be a reluctance to try to unravel that whole carbon tax structure. Delaying it might be very difficult.”

[ Ministers discussing plan for landlords and tenants as part of Budget 2023 ]

A considerable tug of war between Government departments over the planned scale of welfare increases to be announced on September 27th is also expected. A tax strategy paper last week set out the option of a €15 increase to weekly social welfare payments, which would cost more than €1.1 billion. There are growing concerns that this would wipe out the Coalition’s room to manoeuvre in terms of new spending measures, with some in Government arguing for a lower increase.

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Senior sources said they did not think it was the time to increase excise on the so-called “old reliables” of alcohol or cigarettes amid concerns about increasing the burden on consumers. There has been a conversation around whether the Government has “hit the ceiling” on hiking the price of tobacco, with increases of 50 cent on a 20 pack of cigarettes implemented in each of the last seven budgets.

One figure said that if a public-health rationale is put forward for increasing the price of a pack of cigarettes, that will be considered, but an increase to excise on alcohol is certainly viewed as highly unlikely.

[ Budget 2023: The winners, the losers and the battles still being fought ]

The three Coalition parties were accused of failing to help renters in last year’s budget, and Ministers are now examining measures that would assist renters and landlords. The reintroduction of a rental tax credit, which was removed in 2017 after once being worth up to €1,440 annually, was said to be “a point of discussion, definitely”.

For landlords, a 2017 paper on tax treatment has now been “dusted down” and sources say a range of options are being considered, including allowing the local property tax to be deducted from rental income as an expense and allowing a relief from capital gains tax after a property is bought with a tenant in place and retained as a rental property for five years.

Sources said the main route to bring down the cost of childcare would be to increase universal subsidies. These are currently pegged at 50 cent an hour for 45 hours per week and reduces the cost of a childcare place by €1,170 per year.

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Consideration is also being given to changing the thresholds for the means test at which parents can benefit from enhanced supports, which would aid lower-income households. The current threshold is a reckonable family income of €60,000 per year.

Ministers are also working on a package of tax changes for businesses, including improvements on the capital gains tax entrepreneur relief, a review of the Keep share option scheme and potential movement on the research and development tax credit.

A rainy-day fund will likely be reintroduced next year, with a proportion of next year’s projected exchequer surplus forecast to go into this.