This week, the Tax Strategy Group (TSG) published their Budget 2025 papers which depicted various options for tax policy changes. These papers are prepared annually by Department of Finance officials to produce a list of options and issues to be considered in the Budgetary process. This year’s meeting of the TSG was held on the 9 July 2024.
The report serves as a guide to the newly elected Minister for Finance Jack Chambers, as he considers terms for the upcoming October budget for 2025. A package of €1.4 billion has been allocated which will ensure that the Government has the capacity to adjust tax credits and bands to ensure workers do not pay a higher rate of tax as a consequence ofhigher wages.
Minister Chambers has promised to protect wage growth – which was 4.5% last year, which will result in widening the standard income tax band significantly. The TSG paper finds that if the income tax system, (which consists of both universal and non-universal tax credits, standard rate bands, USC bands and age exemption limits) were to account for a 4.5% increase in wages, the cost for the first year would rise to €1.015 billion. This would further increase to €1.17 billion in a full year.
The report also details how more than 40% of all income tax and USC receipts generated in the State come from those working for the multinational sector, both Irish and foreign-owned. Others, including public sector employees and the self-employed, account for around 40% of total receipts.
According to the report, the top 1% of taxpayers are now paying almost 24% of all income tax and over 28% of the Universal Social Charge. Citizens earning less than €69,000 a year, which is the bottom 80pc of income earners, are paying 21% of all income tax and USC.
There is an implication of an imbalanced tax bracket within the report, where too few people are paying too much tax, and that in order for this to be rectified completely, the tax band would have to be broadened to reduce the dependence on higher earners. This is a challenge to Finance Minister Jack Chambers as he prepares the 2025 Budget.
The report also reveals that 7% of all “taxpayer units”, individuals and jointly assessed couples, will be exempt from income tax this year. While 64% will pay the standard rate of income tax, one million of these 2.2 million “units” will find that their income tax liability is “fully covered by their tax credits”.
In regard to the USC, it is estimated that in the upcoming tax allowance, 37% of all taxpayer units will be exempt from USC, which includes part-time workers earning less than €13,000 per annum, persons in receipt of small occupational pensions of less than €13,000 per annum, and taxpayers in receipt of State Pension income only; 33% of all taxpayer units will pay a maximum rate of USC of 4%, which is taxpayers earning up to €70,044; and 11% of taxpayer units will pay the top rates of USC, which is those earning over €70,044. It is predicted that revenues source will go up by €1.9bn, or over 5%, this year.
There was also a recommendation to make filing a tax return on any inheritance gift mandatory, no matter the amount or size and increasing betting tax.
Budget 2025 will be unveiled on 1 October 2024.
