Coalition pledges tax package to benefit almost all workers

Welfare recipients, renters and landlords set to gain from upcoming budget

The upcoming budget is set to see a landmark tax package for workers, with welfare recipients, renters and landlords also set to benefit from measures being examined in the face of rampant inflation.

The Coalition is now pledging a tax package benefiting almost all employees, while budgetary options papers published on Wednesday outlined how core welfare rates could rise by as much as €15 a week in some scenarios – three times last year’s increase – at a cost of €1.1 billion.

The estimates are included in the Tax Strategy Group papers, drawn up to outline options ahead of the budget.

Tánaiste Leo Varadkar said employees would see a “very substantial” reduction in their income tax burden. The Department of Finance papers outlined how up to 2 million people could see their take-home pay boosted by indexing tax bands and credits which would cost between €630 million and €1.1 billion annually, depending on the option.

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“What is absolutely agreed is the principle that we will see a very substantial income tax reduction package in the budget,” the Tánaiste said. “Almost all workers will benefit from that,” he said, adding it would be “bigger than the ones we would have seen in recent years”.

Gains from increasing tax bands and credits are broader than the number of taxpayers who would benefit from a new 30 per cent tax rate examined in the papers, which comes in at about 1 million. Some Ministers believe the complexity of implementing a new tax rate militates against it. Minister for Finance Paschal Donohoe said on Wednesday it would be a “significant” structural change.

Fine Gael is likely to argue the tax package matches increases in welfare spending, where options published on Wednesday range up to €1.7 billion. The tax package for the budget is €1.05 billion, but will have to cover tax measures beyond payroll taxes such as any extension to excise holidays or VAT cuts brought in to deal with the cost of living.

Indexing tax bands and credits is seen as a way of inflation-proofing the tax system. In its paper assessing the proposal, the Tax Strategy Group calculated that indexing the income tax system to the tune of 3 per cent a year would – in full-year terms – cost the exchequer €630 million. Indexing at a rate of 4 per cent, still well below the current level of inflation, would cost €845 million a year.

Under 3 per cent indexation, gains would range from €8 a week for a single individual to €10 a week for a married couple with one earner who have children. Under 4 per cent, this would rise to €11 a week and €13 a week respectively.

Mr Donohoe indicated there was a “very strong argument” in favour of implementing broader one-off measures this year, rather than payments focused only on households in receipt of welfare payments.

Mr Varadkar also indicated that the Government was open to incentivising landlords and providing new relief for tenants in light of record low levels of rental properties on the market and sky-high rents.

“I do think that if there are any significant income tax or tax concessions for landlords in the budget, there should be something for renters as well,” he said.

Senior sources said Fianna Fáil would push for new tax treatment for individual landlords, including the possibility of linking tax to offering longer term tenancies, and targeted tax assistance for renters. While there is some concern in the Department of Finance over linking tax breaks to rental properties, there is a growing recognition of the urgency of the situation as well. Minister for Housing Darragh O’Brien is also set to seek extra funding for cost rental schemes.

Fine Gael sources played down the idea of measures for landlords which would then require the landlord to directly pass the savings on to the tenant. Instead, any measures are likely to be separately targeted at both groups.

Jack Horgan-Jones

Jack Horgan-Jones

Jack Horgan-Jones is a political reporter with The Irish Times

Jennifer Bray

Jennifer Bray

Jennifer Bray is a Political Correspondent with The Irish Times

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times