A third rate of income tax to put more money in the pockets of middle-income earners could be announced as part of October’s budget, the Tánaiste has suggested.
As inflation continues to put pressure on families, Leo Varadkar has suggested that a 30% rate of income tax would help the ‘squeezed middle’, revealing that he first asked Finance Minister Paschal Donohoe to look at this several months ago. However, other Government sources have pointed to the programme for government, which allows for tax credits and bands to be index-linked to earnings from 2022, but does not suggest a new tax rate. A Government spokesperson said the Commission on Taxation is examining the tax system and will report soon, but added: “The cost of any proposal to change the two-rate structure would need to be carefully considered and assessed.” Speaking in Brussels, Mr Varadkar said: “If it comes in, it will be a budget measure, and that makes sense because of the way annual payroll works for us. We set aside about €500m in each budget to reduce the income tax burden, particularly for middle-income people, because people in Ireland pay that highest rate of tax on very modest incomes. Mr Varadkar said there are two ways of addressing the amount of income tax paid, the first is to increase the tax bands or the point at which people begin to pay the highest rate. “The other is to have a middle rate of 30% — we just want to work out between now and budget day, the pros and cons of that,” said Mr Varadkar, adding that it would be a decision for the Government and not the Department of Finance. When asked if the new 30% tax band is a Government suggestion or an idea raised by the Tánaiste alone, a spokesperson for Mr Varadkar said: “Fine Gael policy remains the widening of the income tax bands so fewer people have to pay the higher 40% rate. This is in the [programme for govenrment] and remains Government and Fine Gael policy and is being implemented. The Tánaiste has asked Minister Donohoe to examine a third tax band, but at this point it’s not official Fine Gael policy. Mr Varadkar first floated the idea of a middle tax band in a speech to the Institute of International and European Affairs this week, saying workers “suddenly go from 20% to 40%”. “We are a low-tax economy in the round, but we are not low-tax when it comes to income tax, particularly for people on middle incomes, those who earn more than €38,000, couples who earn more than €60,000 or €70,000,” he said.