New 30% tax rate would be ‘inequitable’ if lower-earners not offered reliefs, Varadkar says

Tánaiste says income tax changes announced in budget next month will not be ‘just for one group’

The introduction of a 30 per cent tax rate for around 1 million middle-income earners would be “inequitable” if it did not happen in tandem with reliefs for people outside the proposed threshold, Tánaiste Leo Varadkar has said.

Speaking to reporters in Roscommon town on Thursday, the Fine Gael leader said a tax package with a “universal approach” should be pursued in next month’s budget.

“No matter what we do on income tax, I don’t think it’ll be just for one group,” he said.

A 30 per cent rate was listed in the Tax Strategy Group papers published this week as a possible option available to the Government to ease the burden on middle income earners. Mr Varadkar said he disagreed with Opposition calls for any tax breaks to be exclusively for low-income earners.

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“I don’t agree with that, I think we need a universal approach, where we help everyone with the cost of living, because everyone is feeling squeezed, and have more targeted measures for those who need it most,” he said.

Mr Varadkar said addressing the cost-of-living crisis was a key concern in the pre-budget decision making process, while also “not losing sight” of the need to invest in housing, health and defence.

“Even though we’ve a very substantial budget package this year, because the economy is so strong, there’s always a huge number of competing demands,” he said. “[It’s] very hard to spread that thinly, but not too thinly.”

Childcare costs

The Tánaiste said work would continue on a package that included a “combination of things” such as tax reliefs for workers, social welfare increases and bringing down the cost of services such as childcare. He said nothing was yet set in stone ahead of the budget and that any tax breaks for landlords would come along with reliefs for people renting.

“No decision whatsoever as we made in relation to tax relief for landlords – like everything between now and the budget day, it’s under consideration.”

Earlier, Minister for Finance Paschal Donohoe said any budget moves around tax would aim to help people to keep as much of any wage increases as possible. He said he was aware that the money in a person’s wallet was not purchasing as much as it used to, so indexation was important as wages rise so people do not end up paying more tax.

Mr Donohoe’s comments come amid expectations of a landmark tax package for workers. 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.”

Windfall tax

Mr Donohoe said he understood why people were calling for additional taxes on the energy sector, where record profits are being recorded during the cost of living crisis, but that he remains cautious about any such move. Sinn Féin, Labour and People Before Profit urged the Government to bring in a such a windfall tax on energy companies in the wake of a 74 per cent growth in profits at Bord Gáis Energy.

He said the renewable, wind and solar sectors need to be delivering more energy so Ireland and Europe can be more energy independent and not face situations like the present where energy security is an issue due to the impact of the Russian invasion of Ukraine.

Mr Varadkar said the Government should give consideration to introducing windfall tax on the profits of energy companies but he warned against a “short-term fix” that would deter investment by energy companies in the national grid.

“People are paying more because the international cost [of energy] has risen,” Mr Varadkar said. “Some of it may be increased profits by companies, but that’s not predominantly why people are paying more.

“If it’s a tax on the windfall, that makes sense. But if it’s a tax on regular profits, expected profits, there’s a risk there that you might actually tip companies away from investing in the grid, away from investing in a new generation, away from investing in renewables,” he said.

“That would be a short-term fix, that actually creates a long-term problem.”

Vivienne Clarke

Vivienne Clarke is a media monitor and reporter