Revenue does its budget sums

Cantillon: Introducing a third rate of income tax of 43 per cent would generate €433m from the 314,350 taxpayers earning €80,000 or more

Minister for Finance Paschal Donohoe has much to ponder as he frames Budget 2019. Photograph: Tom Honan

Minister for Finance Paschal Donohoe has much to ponder as he frames Budget 2019. Photograph: Tom Honan

 

With Budget 2019 fast approaching, the Revenue Commissioners have been busy running the numbers on a variety of taxation scenarios for Minister of Finance Paschal Donohoe to consider.

The one that might make senior executives and higher earners particularly nervous is the scenario around introducing a third rate of income tax of 43 per cent.

Targeting workers with earnings of more than €80,000 would generate a hefty €433 million from the 314,350 taxpayers in that net.

Hitting those earning €100,000 or more (190,056 taxpayers) would yield €339 million, while targeting those on €120,000-plus (north of 100,000 people) would bring in €280 million for the exchequer.

While introducing a third tax for higher earners would play well with the social justice brigade, it wouldn’t sit well with multinational companies or the IDA, which has warned about our need to remain competitive to continue to attract foreign direct investment.

In any event, with a general election potentially around the corner, there is probably a slim chance of Leo Varadkar signing off on any income tax increases.

Equalising the excise rates applied on diesel with those of petrol – a move environmental campaigners would support given the dieselgate scandal – would generate €353 million a year.

More likely is that the Government would nudge up the diesel rate. Doing so by 1 cent-a-litre would generate €27 million, by 3 cent would bring in €79 million, and by 5 cent would yield €132 million.

Increasing the special 9 per cent Vat rate that applies to hospitality and other sectors (including newspapers) looks more more likely. Revenue has calculated that a one percentage point increase to this rate would generate €133 million.

The special rate was introduced in 2011, primarily to help hotels and other accommodation providers weather the recession.

The Government last year baulked at increasing the tax, citing uncertainties around the impact of Brexit on the sector. But with hotels in Dublin and elsewhere mostly full to the rafters and charging sky-high rates, Donohoe might decide that the time is ripe for a rate rise.

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