30% tax rate idea still being examined – Varadkar
A new 30% tax rate for middle-income earners has not been ruled out, according to Tánaiste Leo Varadkar.
Last March, the Fine Gael leader said he had asked the Minister for Finance to examine the viability of a new 30% tax rate for middle-income earners.
He told the Institute of International and European Affairs that workers “suddenly go from 20% to 40%”.
Speaking on RTÉ’s Today with Claire Byrne, Mr Varadkar said there were options [around the 30% suggestion] that were under consideration for the Budget.
He noted that “as people’s incomes rise, more and more get hit by the higher tax rate” but said the 30% tax rate was not a commitment in the Programme for Government.
He said Paschal Donohoe thinks there are pros and cons to the idea. “It is being examined and we will make a decision at Cabinet,” added Mr Varadkar.
He also said that the gap between how the cost of living crisis affects lower and higher income earners is “much narrower” than people might think.
Tanaiste Leo Varadkar has said that people have the impression that those on the lowest incomes are being hit twice as hard by the cost of living, but actually the gap is “much narrower”.
“The CSO did some really interesting research on this only last month … inflation has reduced the incomes of people in the lowest quarter by about 7.6% [and for the middle] by 6.7%.
“Sometimes you’d have the impression that people on the lowest incomes are being hit twice as hard but that is not the case.”
He said that the Government will opt for a combination of universal and targeted measures because “everyone’s feeling the squeeze”.
Earlier, the Minister for Finance said that maintaining safe public finances is incredibly important as there may be further challenges “around the corner”.
Paschal Donohoe said he is conscious that there are people across many sectors of society who are feeling the impact of higher food and fuel prices.
But, he said, the Government’s aim is to get the balance right, while “recognising that we can’t do everything at the same time”.
Speaking on RTÉ’s Morning Ireland, the minister said Ireland’s economy proved its ability to have safe public finances and to get the country back to work in the aftermath of the Covid-19 pandemic.
He said the decision to bring this year’s Budget forward by two weeks will allow the Government to have a better ability to help this year, but warned that it is “genuinely difficult” given the uncertainty at the moment “to look at where we will be in 2023”.
The Government published its Summer Economic Statement yesterday, which showed the Budget will contain spending and tax measures equal to €6.7 billion.
The Budget, which will take place on 27 September, will involve €5.65 billion in spending and just over €1 billion in tax measures.
In relation to taxation, Mr Donohoe said he wants people to see the benefit of any pay rise they may get and that it will not be subsumed by the rising cost of living.
He said he is also aware of the effects the higher prices are having on those people relying on social welfare payments.
The minister said there are two things that the Government is working to deliver.
“The first one is we want to put the decisions and plans in place that help our economy to continue to grow next year, because that’s vital for the protection of jobs.
“And then the second thing that we will do is we will make the best use possible of the additional resources we announced yesterday to give as much help as we can”.
He said that in September, the Government will have a far better idea what impact that could have on living standards for next year.
“And then when we are clear on that, we will then agree on the detailed measures that can be implemented inside this year to provide help as soon as we can on top of the changes that we’ve made in VAT and gas and electricity, lower excise,” he said.
Mr Donohoe also said a decision has not yet been made on potential increases to the Back to School Allowance.
“I would prefer at this point not to give an anticipation as to what the decision will be, because Minister [for Social Protection Heather] Humphreys, Minister [for Education Norma] Foley and Minister [for Public Expenditure Michael] McGrath, I know, are working on this matter at the moment,” he said.
Speaking on the same programme, People Before Profit/Solidarity TD Richard Boyd-Barrett said the €6.7bn Budget is not going to be enough to shield workers, pensioners, students and low-income households from the cost of inflation.
He said the average earner is losing about €3,500 in income due to the cost of inflation.
Mr Boyd-Barrett said the Government is blaming a lot of the rise in the cost in living on the war in Ukraine but, he said, the housing and rental crisis long predates the war.
He said long-term measures are needed to ensure people’s incomes and the support available to them keep pace with the rising cost of living.
“Otherwise one-off measures are literally bandages on a gaping wound. So that’s why we need increases in pay, income, and pensions that keep place with the level of inflation”.
Earlier, a senior economic analyst with the independent Think-tank for Action on Social Change (TASC) said the Summer Economic Statement did not have a lot of information, unlike previous years.
Dr Robert Sweeney said the €6.7bn package was just “a headline grabber” as when the figures are broken down there will not be a lot of extra money available to spend.
He said spending will actually only increase by about €1.7bn and only €400m will be spent this year.
“If you want to put that into perspective, the cost of the energy credit earlier this year was a little bit under €400m, so there’s not going to be a huge amount that’s going to be done at the remainder of this year. Most of it is going to come next year.”
Dr Sweeney said that the burden of debt is not hugely concerning but it is more the burden of servicing that debt, which is the more important measure of financial sustainability.
Head of Social Justice and Policy with the Society of St Vincent de Paul said that the number of people seeking support from the charity has gone up by 20%.
Dr Tricia Keilthy said that through work in the community it is clear that a lot of households are struggling on a day to day basis and there are “very high levels of poverty in Ireland”.