Minister for Finance Paschal Donohoe has explained that any moves to introduce a new 30 per cent tax band would be with the aim of helping people to keep as much as possible of any wage increases.
The Government knew that the money in a person’s wallet was not purchasing as much as it used to, so indexation was important as wages go up, so people did not end up paying more tax, he said.
“We want them to keep as much as they’re earning,” he told national radio. The objective for the Government was to change personal taxation in a way that was affordable.
People in Ireland entered higher tax bands when on an average wage, compared to other countries, explained the Minister. A 30 percent rate would be fairer.
However, he cautioned that any tax changes were difficult to implement in a calendar year because of the changes required for employers.
The Government was also looking at the options in relation to increasing rates of social welfare as it wanted to help those who were most vulnerable. But such figures could not be pulled out of thin air, he said. “We are looking at what we can do, what is affordable.”
The Minister said he had no plans to change the amount available to spend from €6.7billion. “We will stay inside the parameters.”
However, there will be one-off measures in the Budget this year that will help with the cost of living.
Meanwhile, Social Democrats co-leader Róisín Shortall has called for any social welfare increases to be benchmarked.
It should be possible to live life with dignity if on social welfare, she told national radio.
Ms Shortall also said that tax cuts were not the best way to go about spending State money. There was a case for index linking to help people across the board. People who receive wage increases to meet the cost of living should not have to pay more tax, she said.
More should be “clawed back” at the top end, she said. It was not fair that a person on €500,000 would get the same tax break as a person earning €36,800 under the proposed new tax bands.
That was a very expensive way to go about tax reform. The Tánaiste appeared to be “anti tax” the same as Conservative Party leaders, added Ms Shortall.
Taxation was very important, she said. “None of us like paying it, but it pays for public services. The social contract should exist.”
The proposals “do nothing” for people on low incomes and 20 per cent of the workforce were in that group, she said.
It was important not to erode the tax base. The social contract was important to have a society that worked well and provided a good public service.