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26 Sept 2022

Introducing third income tax band will be based on policy merits – Donohoe

Introducing third income tax band will be based on policy merits – Donohoe

Minister for Finance Paschal Donohoe has said he wants to bring in budget measures that would see workers keep “as much of the money that they are earning”, but said government is still discussing the best approach.

Mr Donohoe also said the Government will consider introducing a third income tax band, but that it will be based on its policy merits.

On Wednesday, the Government’s tax advisory group published papers that indicate a third income tax band could see up to a million taxpayers take home an extra 500 or 1,000 euro a year.

Mr Donohoe said the third tax band of 30% is “technically possible” to bring in.

Introducing a third middle rate tax band and indexing the tax bands to earnings are among some of the options being considered by the Government ahead of September’s budget.

Mr Donohoe said that at a time when wages are going up, the Government should bring in measures that would help workers keep “as much of the money that they are earning”.

“What we’re now discussing are the different ways in which we can deal with it,” he added.

“It can either be done through, for example, a 30% tax rate, an alternative way in which it can be done is to move the existing tax rates, the existing credits and bands that are there at the moment.

“What I’ll be able to do later on in September is confirm, once we’ve engaged with government, what will be the way in which we’ll do this.”

Mr Donohoe told RTE Morning Ireland that the Government will consider the merits of a third tax rate.

“But what the Government will have to do is consider, not just what is technically possible or not, it’s what are the policy merits of it and how we can help at a time of rising cost of living and rising prices,” he said.

“The critical point in this, overall, is that earlier on in the year, the Government confirmed and announced that we would have tax changes of just over a billion euro as part of budget 2023, and that’s what we will be doing.

“In the coming weeks ahead, myself, Minister (Michael) McGrath and the Government will identify how that money can be used in the most effective way.

“We know many are feeling the squeeze.

“We know that the money that’s in your purse isn’t getting you what it used to be able to get you. We want to see how we can help with that.”

Mr Donohoe also said he has no plans to adjust the budget package of 6.7 billion euro.

“It is going to be the case, and I’ve also made this clear, that there will be one-off measures in 2022 that will help with the rising cost of living in what could be a difficult winter,” he added.

“But they will be in 2022 as opposed to additional measures and 2023.”

Meanwhile, Mr Donohoe acknowledged there is a “risk” that new laws banning the sale of cheap alcohol could reduce tax returns as more people travel to Northern Ireland to buy alcohol.

However, he said he does not see the risk developing in a “significant way”.

Minimum unit alcohol pricing was introduced in Ireland earlier this year.

Ireland is one of only a small number of countries worldwide to introduce a legal floor price for the cost of alcoholic drinks.

Mr Donohoe said the papers published on Wednesday shows there is a risk of a lower tax return.

“I’ve acknowledged in recent years that any significant change in the price of alcohol within our own country could indeed potentially be a cause of consumption on purchases happening elsewhere,” he added.

“At the moment, I do not see that risk developing in a significant way.

“It’s not happening at the moment within our economy. But we did acknowledge yesterday that if you get to a point that there is a very very big gap between the North and here in relation to the price of alcohol, that could be a trigger for cross-border shopping.

“That’s always been the case but don’t see it happening at the moment.”

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