Ministers need to consider carefully what is done on budget day and what messages are sent out
Minister for Finance Michael McGrath and Tanaiste Micheal Martin at the Fianna Fail Parliamentary Party Think-In. The budget tax debate, now in full swing, is badly in need of some perspective. Amid talk of increases in income tax bands and credits and USC cuts, the relatively limited amount of money set aside to reduce taxes – €1.1 billion – needs to be kept in mind.
What is in prospect is not a reduction in the tax burden – or at least not one which most households will notice. Some senior ministers – including Taoiseach Leo Varadkar and Minister for Public Expenditure Paschal Donohoe – have put it more accurately, saying that the goal is to allow people to keep a reasonable amount of any wage increase they get. Thehas also correctly observed that the money available for tax cuts will only go so far.
When wages are rising, income tax credits and bands need to be adjusted if the taxation burden is not to rise – and that is probably all that can be achieved with the cash available this time around. Indeed, there is an argument to make that these adjustments for inflation, and similar ones in the welfare system, should be made automatically. This is one of the issues under consideration in a public consultation on the income tax system underway in the Department of Finance.
. Demonising of the USC, for example, is unwise, as it is a tax that covers more income than income tax, is harder to avoid via tax planning and is a vital support for the exchequer, raising more than ¤5 billion per year. It was introduced after the financial crash because the tax system was broken and is here to stay.
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