Tax rates ‘unsustainable’ for middle-income earners, Donohoe says

Minister for Finance unhappy with idea of person working overtime losing half extra pay

Minister for Finance Paschal Donohoe wants to raise the entry point for the marginal rate of tax, saying the system at present is "unfair" and "unsustainable" for middle-income earners.

Fine Gael has previously pledged to reduce the tax burden on higher earners by raising the threshold at which the higher 40 per cent rate of PAYE is applied. It currently stands at €33,800 for single people and €67,600 for a married couple when both are working.

Speaking at an event on public sector reform on Tuesday, Mr Donohoe said it was not “sustainable in a modern economy” for someone on a low-to-middle income to lose half of their extra income in tax.

The Dublin Central Fine Gael TD criticised the current situation where a worker on the average salary could work an hour of overtime, and "be earning €10 extra... and to take home less than a fiver, after they do that extra overtime".

“I do not believe that it is a sustainable or fair position for our economy to be in,” he said.

Mr Donohoe said he would like to address the threshold at which the marginal tax rate applies, but refused to divulge any plans in how he might do so in October’s budget.

His comments follow those of the new Minister of State at the Department of Finance, Wexford TD Michael D'Arcy, who indicated a desire to raise the threshold to €40,000.

Such a move would take the threshold beyond the current average wage, which stood at €37,600 in the first quarter of this year, according to the Central Statistics Office.