Dáil Éireann Debate, Wednesday - 5 November 2014
37. Deputy Richard Boyd Barrett asked the Minister for Finance the reason his proposed income tax and universal social charge budget measures disproportionately favour those on higher incomes; and if he will make a statement on the matter. [41767/14]
View answerA fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high and that I would seek to reduce it as soon as it was prudent to do so. The measures announced in the Budget are the first stage of a reform plan, to be undertaken over a number of years, to address this issue, particularly for middle-income earners who have borne the greater share of the cost of the economic downturn.
In Budget 2015 I announced a reduction in the top rate of income tax from 41% to 40%. I also extended the standard rate band on which income tax is chargeable at the lower 20% rate by €1,000.
In addition I have reduced the two lower rates of USC from 2% and 4% to 1.5% and 3.5%, respectively. Furthermore, I have also increased the threshold before which the 7% rate of USC becomes payable to €17,576, so that those on the minimum wage will now only be liable to a maximum 3.5% rate of USC.
The Budget also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to the over 70s, with incomes that do not exceed €60,000, again down from 4%.
Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the Budget also contains USC measures which have the effect of limiting the maximum benefit from this package of tax measures to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent, as those with more modest incomes.
While the benefits from the changes introduced in Budget 2015 are broadly proportionate to the level of income earned for those on low and middle incomes, the reality is that because of the highly progressive nature of the Irish tax system those on lower incomes pay very low levels of tax, particularly when compared to their counterparts in Europe.
Currently, a single individual employed on the standard minimum wage of €17,542 per annum pays income tax of €4.01 and USC of €10.51 per week. Furthermore, someone on the standard minimum wage is also exempt from paying PRSI. As a result of the changes introduced in Budget 2015 the weekly USC charge of €10.51 per week will fall to €7.19 per week. This means their tax bill will be reduced by just over 20%.
In contrast a single individual earning €70,000 per annum currently pays €25,531 per annum or €490.98 per week in income tax, USC and PRSI. After Budget 2015, this individual's tax bill will be reduced by about 3%. Contrasting these two examples, I cannot agree that the income tax budget measures disproportionately favour those on higher incomes. In fact, the highest proportionate benefit as a percentage of net income from the Budget tax changes occurs at an income level of just over €12,000. This is a result of my decision to extend the USC exemption threshold from €10,036 to €12,012, which also has the effect of removing 80,000 low earning individuals from the charge entirely.
The changes announced in the Budget will ensure that all those currently paying income tax and/or USC will see a reduction in their tax bill in 2015. I propose to continue this reform in future Budgets, subject to the required economic growth and the consequent fiscal space available to the Government.
