Dáil Éireann Debate, Wednesday - 17 January 2024
318. Deputy Colm Burke asked the Minister for Finance if he will consider introducing a refundable tax credit that would return unused portions of the PAYE tax credit to low-income workers; and if he will make a statement on the matter. [56657/23]
View answerThe position is that the matter of refundable tax credits was examined as part of this year’s Tax Strategy Group (TSG) process in advance of Budget 2024 and the analysis and findings of the review were published in the Income Tax TSG paper, which is available on the Department of Finance’s website at the following link: www.gov.ie/pdf/?file=assets.gov.ie/263911/70cb5fff-21ee-4213-bf52-fd42453e7d42.pdf#page=null.
The review explored the concept of refundable tax credits, provided an overview of previous relevant studies, an overview of refundable tax credits in other countries and provided an economic analysis of refundable tax credits.
Overall, the review identified a number of issues concerning refundable tax credits. Introducing such credits would represent a fundamental change to the personal tax system. On the one hand refundable tax credits could help tackle in-work poverty and increase vertical equity. However, there are already a wide range of existing policies tackling poverty and direct supports are a simpler and more effective means of providing assistance to low income households.
Additionally, the introduction of refundable tax credits could potentially prove to be very costly and provide relatively little benefit to the majority of individuals, including those working full time and earning at least the national minimum wage because such workers generally fully utilise their tax credits. Tentative estimates provided by Revenue suggest a cost in the region of €1 billion in relation to making personal tax credits refundable. Furthermore, refundable tax credits could also have potential behavioural impacts on labour supply and reduce the incentive to work or to take on additional work. Finally, implementing a system of refundable tax credits would result in operational and administrative complexities as well as potentially reducing eligibility for some existing supports for low income households.
For the reasons outlined above, I have no current plans to introduce a system of refundable tax credits.
