I assume that the Deputy refers to an extension of the standard rate income tax band, which would apply similarly to single and widowed persons, as well as to single person child carers. The proposed extension to the standard rate band is assumed to also apply to married couples and civil partnerships. On this basis, I am informed by the Revenue Commissioners that the full year cost to the Exchequer, estimated by reference to 2014 incomes, of increasing the standard rate tax band by €10,000, €20,000, €30,000, €40,000 and €50,000, while also maintaining the current monetary differences between the single persons standard rate band and the various other classes of tax bands, is as follows:
Proposed Increase
|
Estimated Cost € Billion
|
€10,000
|
1.3
|
€20,000
|
2
|
€30,000
|
2.5
|
€40,000
|
2.8
|
€50,000
|
3
|
These figures are estimates for 2014, using the latest actual data for the year 2011 adjusted as necessary for income and employment trends in the interim. They are provisional and may be revised. A married couple or civil partners who have elected or have been deemed to have elected for joint assessment are counted as one tax unit.
In assessing the potential impact on the economy of such a measure, research produced by the ESRI as part of the Medium-Term Review: 2013-2020 of July 2013 (p 117-118) is informative. Using the HERMES macroeconomic model, the ESRI tested the economic impact of an adjustment in income tax rates such that it would yield an additional €1 billion income tax in the first year of the adjustment, with the rate unchanged thereafter. The results of the research suggest an income tax multiplier of 0.4 that is, a €1 billion change in income tax affects GDP by about €400 million. Employment would be impacted by about 0.1 per cent in the first year and 0.5 per cent over the forecast horizon.
The relatively low multiplier likely reflects the open nature of Ireland's economy and the fact that increased demand would 'leak out' through imports to a certain extent. The simulations also include the assumption that some part of a reduced tax burden would be saved rather than spent by households. The simulations suggest that the annual deficit would increase by 0.5 percentage points of GDP and general government debt by just over 2 per cent of GDP, over a six-year horizon.