Self-employed tax credit to equal employee credit in Budget 2020

The Minister for Finance plans to increase an income tax credit for self-employed people in next year’s budget to bring it in line with the credit currently offered to employees.

Paschal Donohoe announced last month that the earned income tax credit for self-employed people would increase from €1,150 to €1,350, a move that will cost the exchequer €48 million next year.

The tax credit for employees is €300 higher, standing at a maximum of €1,650.

Addressing the Oireachtas Finance Committee on Wednesday, Mr Donohoe said, it "would be my intention to complete the journey in relation to the earned income tax credit". He added that he will do this if resources are available to him next year "in the way they have been this year".

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The move to €1,350 was criticised on budget day last month, with Irish Farmers Association president Joe Healy saying it did not go far enough.

“It is simply not right that a farmer earning €16,500 will be paying €300 a year more in income tax than a PAYE employee next year,” he said, arguing that the Government had reneged on a commitment to reach parity by 2018.

Mr Donohoe conceded on Wednesday that “there are many different bridges that need to be crossed” before he reaches Budget 2020.

Electric vehicles

At the morning session of the first committee examination of the Finance Bill 2018, Mr Donohoe also agreed to look at an extension of an existing measure in relation to electric vehicles. In October, the minister extended the 0 per cent benefit-in-kind rate for electric vehicles for three years, but added a cap of €50,000 on the original market value of the vehicle.

Fianna Fáil finance spokesman Michael McGrath said some people would have bought a vehicle at a cost greater than €50,000 during 2018 while hoping to take advantage of the measure.

“I’m not arguing with the principal of a cap but I think you are shifting the goal posts with people availing of the exemption,” he told Mr Donohoe, adding that companies investing in electric vehicles need longer term certainty.

Green Party leader Eamon Ryan said the Government should avoid sending false signals. "For someone pushed to the bone it would have financial consequences," he added.

“I will look at the numbers affected by this,” Mr Donohoe said. “I genuinely don’t believe that the change, the policy, we are putting in place here is going to cause significant financial hardship to anybody. We’re talking about vehicles that are more than €50,000 and many of them are a lot more than €50,000.”

“I strongly believe the role of tax reliefs and expenditure is to be targeted and to force people to make a decision they otherwise would not make,” Mr Donohoe added.