Taxpayers could be let down by the Budget when it comes to income tax changes.
This is because an official report on the options for changes to income tax in October’s Budget has not looked at what it would take to give middle-income earners a €1,000 income tax break.
Huge controversy erupted in May when three Fine Gael junior ministers said they want to see tax relief of more than €1,000 for full-time workers on an average wage of €52,000.
Ministers of State Jennifer Carroll MacNeill, Martin Heydon and Peter Burke included the proposal in an article in the ‘Irish Independent’ among a number of ways to use the billions in budget surpluses expected in the coming years.
But options outlined in a new report by the Tax Strategy Group (TSG) published by the Department of Finance do not look at lowering the income tax burden of middle-income workers by €1,000.
This could mean Finance Minister Michael McGrath is backing away from a full €1,000 tax break for middle-income earners.
The Tax Strategy group chaired by the Department of Finance and comprises senior officials and advisers from several governmental departments and offices.
The papers the group publishes set out the options for the Budget and the likely costs of the various options.
In the income tax paper, two options for increasing the standard rate income tax band are looked at by officials.
These are to increase the standard rate band by €1,000, with the second option to increase it by €1,500.
Adjusting the standard rate band by €1,500 would mean allowing people to earn an extra €1,500 at the 20pc tax rate, before hitting the 40pc rate.
However, increasing the standard rate tax band by €1,500 would only deliver an income tax reduction of around €300 a year for a single person, a married one-earner couple, or a two-earner couple.
In last year’s Budget the standard rate band was increased by €3,200.
This meant that people can now earn €40,000 before they move on to the higher 40pc income tax rate.
The standard rate tax band would need to be increased by around €4,000 in October to deliver anything approaching a €1,000 income tax break, along with €100 increase in the tax credits.
Last year there was also an increase of €75 in the tax credits, with the personal, employee and earned income tax credit each going up by €75.
But the Tax Strategy Group paper on income tax prepared ahead of this year’s Budget only looks at increasing the income tax credits by €50 each.
This would only deliver a lowering of €100 a year for a typical worker, according to the consumer tax manager at Taxback.com Marian Ryan.
