An increase in social security contributions? A third income tax rate? The government lays out its options ahead of budget day

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Since the 1990s, the Treasury has published annually a set of options for ministers to consider before the budget.

The Tax Strategy Group breaks down the impact and costs of a range of measures, from income tax cuts, welfare increases and various other potential spending decisions.

The government, of course, takes into account the information published in the documents, but is not bound by the suggestions made to them by their fellow officials.

However, they are interesting to read and regularly signal the government’s approach to how it intends to spend our money in the coming year.

Here we look at some of the key recommendations from this year’s Tax Strategy Papers.

tax cuts

Around a million income taxpayers would benefit from Leo Varadkar’s proposal for a third rate income tax rate of 30 percent. If the new tax rate were applied to income between €36,800 and €46,800, the gain would be €1,000 per year for single earners and single earner married couples.

Meanwhile, the document shows that the cost of indexing the income tax system to 3 percent could result in a single person earning €416 a year, or €8 a week. A married, single-earner couple with no children would earn €466 a year, or €9 a week. Two million taxpayers would benefit from this.

The paper also deals with an increase of €1,500 in the standard rate range of the uniform income tax. This would mean that taxpayers could earn another €1,500 before hitting the 40 percent tax rate. An increase in the income tax credit, employee tax credit and income tax credit of €50 is also included.

In this scenario, a single earner would earn EUR 400 a year, and a married person would earn EUR 450. Around 1.9 million taxpayers would be better off.

VAT

Officials downplayed prospects of reducing VAT on new homes to 9 percent from the current 13.5 percent, something allowed under EU rules and which homebuilders have been campaigning for.

Officials raised concerns that different sales tax rates for commercial and residential properties would be difficult to manage and increase the risk of fraud, and questioned whether developers would pass the potential savings on to homebuyers rather than increasing margins.

A lower rate should apply to homebuyers and large investors alike, they noted.

A reduction in VAT to the lower rate would reduce the price of a new home on the market from €300,000 to €288,105 if the rate change were passed on in full.

social benefits

The Social Protection Budget Package document outlines a range of options to increase all social assistance rates – such as the state pension, unemployment benefits and disability benefits – by €15.

According to the paper, a €15 increase would result in a person on a working-age payment increasing their weekly rate to €223, while a person on a contributory state pension would increase their rate to €268.30 per week.

It states that a €15 increase in all tax rates, together with proportional increases for qualifying adults and those with reduced payment rates, would cost taxpayers €1.1 billion. An increase in the sole maintenance allowance by €6.50 per week for €78.1 million is also being considered.

The report also warns of a growing black hole in the Social Security Fund, which finances pension payments. The fund is forecast to post a loss of €2.3 billion in 2030 and a loss of €13 billion by 2050, before rising steadily to €21 billion by 2070.

It proposes increasing employer and employee PRSI rates by 1.5 percent over the next five years. This would increase the employee contribution rate, which has remained unchanged since 2001, from 4 percent to 5.5 percent and the employer contribution from 11.05 percent to 12.55 percent.

It also proposes phasing out the lower employer contribution rate, currently 8.8 percent, by gradually increasing it over five years to reach the new standard rate of 12.55 percent.

excise duty

The document looks at a range of excise duty increases for beer, cider and spirits from 1 cent to 20 cents and from 5 cents to €1 for wine.

However, it is also noted that the Drinks Industry Group Ireland (DIGI) and the National Off-Licence Association, in their pre-budget proposals, propose a 7.5 per cent alcohol tax reduction in Budget 2023 and a further 7.5 per cent reduction in the 2023 budget have requested the 2024 budget. The group says this should be the start of a program of annual excise duty reductions to gradually bring Ireland’s alcohol tax in line with lower EU levels. It also deals with increasing the excise duty on cigarettes.

There is also a proposal to increase betting tax by 0.25 percent while increasing the scope of tax breaks for gambling companies from €50,000 to €65,000. It notes that the Revenue Commissioner has raised concerns about increasing the amount of betting tax relief, as it only benefits a limited number of operators and could breach state aid rules.

VRT

The government has also been warned of vehicle registration tax (VRT) increases to encourage car buyers to act and speed up electrification. According to a paper by the Tax Strategy Group on Climate Action and Tax, representatives of the automotive industry have asked for time for the current VRT system to “embed”. “In this context, the Society of the Irish Motor Industry has called for vehicle taxes not to be further increased in the current economic climate,” it said.

“They have warned of rising costs for businesses and motorists, arguing that this will bring stability and security to both industry and motorists.

“Furthermore, they say this will encourage car buyers to switch to a new car that reduces emissions and speeds up the electrification process.”

In particular, it states that the industry has warned against the introduction of emissions-based taxes for commercial vehicles.

https://www.independent.ie/news/a-hike-in-welfare-rates-a-third-income-tax-rate-the-government-sets-out-its-options-ahead-of-budget-day-41903788.html An increase in social security contributions? A third income tax rate? The government lays out its options ahead of budget day

Fry Electronics Team

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