Speaking today at a Fine Gael event in the Airport View hotel, Brian Hayes MEP made the case for steady annual increases in the entry level figure for the high rate of income tax so that it can reach €50,000 by 2025.
“The Irish economy remains on a strong growth path. With the right mix of policies, the economy can continue to grow at a sustainable rate of around 4% on average. The Central Bank today predicted that the economy will grow by 4.4% this year; it is about keeping that growth rate sustainable. As the economy grows, government revenues will grow in tandem providing resources for improved services, investment and lower taxes.
“As we leave the great recession behind us, it is important that those who got us through the recession and now contribute to the growing economy see the benefits in their take home pay and in their standard of living.
“The government’s commitments on reducing the tax burden on workers is the right approach into the future. Firstly, this is all about making work pay – lowering income tax puts money directly into wage packets, reducing upward pressure on wages. Secondly, incremental steps need to be taken on an annual basis to reduce the income tax burden, particularly the entry point of the high rate of tax. Thirdly, the changes to the tax code must be affordable into the future and must have consideration to overall budgetary changes.
“Added to the government’s commitment, I believe we must set a target on how we will reduce the income tax burden. The clear focus of future tax reductions should be on raising the entry level to the high rate of tax to €50,000 by 2025. This must be done incrementally.
“In Ireland, a single person begins to pay the top rate of tax on earnings over €34,500 – it was increased from €33,750 in the last budget. In this regard, Ireland is completely out of kilter with other countries. In the UK, earnings must reach around €180,000 before a person hits the top rate, in Germany it is over €250,000 and in the US, it is equivalent to €300,000.
“By Budget 2020, when we have some more flexibility in our spending, I believe the entry level to the high rate of tax should be raised to €37,500. This would put us on a path to achieving a threshold of €50,000 by 2025. The cost of raising the threshold in subsequent years would decline; as the threshold continues to be raised fewer people would in a wage bracket to benefit.
“Reducing the income tax burden must be a central element of government policy. In 2007, there were 2.24 million people employed and they paid approximately €11 billion in income tax. According to the latest CSO figures there were 2.2 million people employed who paid €20 billion in income tax. This is a massive increase in total income tax take over the course of one decade and the burden must be reduced.
“As well as being a heavy burden on Irish tax payers the high level of income tax in Ireland is also a major constraint in attracting senior executives of major international companies to work here.
“This heavy burden of taxation on relatively modest incomes is a huge disincentive for workers. It also makes it more difficult for Ireland to retain and attract young professionals.
“Middle income earners and young people on relatively modest wages deserve a break. Raising the income threshold for the higher rate of tax is the way to go.”