INCOME TAX OPTIONS have been presented to government ahead of October’s budget which indicates that continuing with increasing the standard rate of the income tax cut-off point, the threshold at which earners starting paying the top rate of tax, from €42,000 to €43,890 would cost €465 million.

Coalition leaders have said that the government’s main focus will be on income tax, and have indicated that the standard rate band will continue to rise in this year’s budget.

The Summer Economic Statement outlined that €1.4 billion is available for tax measures. 

According to a paper from the Department of Finance’s Tax Strategy Group (TSG), which outlines the possible cost of potential income tax changes ahead for Budget 2025. 

Apart of changes to the standard rate, reducing the top rate of income tax from 40% to 39% would cost the exchequer €525 million a year, it finds. 

• Budget 2025: Income tax cuts, inheritance tax changes and rent credit rise on the cards

“We’ve consistently made progress on increasing those income bands. I’d hope we could do that again,” Taoiseach Simon Harris said recently. 

The Taoiseach has also indicated that further Universal Social Charge reductions (USC) are on the cards.

Tánaiste Micheál Martin, along with the Taoiseach, have also indicated that the budget will target low to middle income earners, stating that it is about ensuring that workers can maximise their take-home pay. 

The tax papers note those earning less than €69,000, which represents the bottom 80% of income earners, contribute 21% of total income tax and USC receipts.

Those earning over €102,000 per annum contribute 63% of all the income tax and USC collected in 2024.

Fianna Fáil and Fine Gael ministers are in favour of cutting USC by 0.5%, which would be the same cut that was in last year’s budget.

The tax paper sets out that this year, 37% of all taxpayers will be exempt from USC, while 19% of all taxpayers will pay a maximum rate of USC of 2%, as they are earning up to €25,760 or those over 70 with income of less than €60,000 per annum. 

However, a total of 33% of all taxpayers will pay a maximum rate of USC of 4%, which is
taxpayers earning up to €70,044, while 11% of taxpayers will pay the top rates of USC, as they are earning over €70,044.

In addition, the paper sets out that Ireland’s tax base is “highly dependent” on the taxation revenues from a small number of multinational companies.

The latest data shows that over half of corporate tax receipts were paid by just ten large taxpayers in 2023.

This means that €1 in every €7 of all tax collected by the State is directly sourced from these large corporate tax payers, which poses a major concentration risk.

With receipts totalling €23.8 billion in 2023, Corporation Tax is now the country’s second largest source of tax revenue accounting for approximately 27% of receipts.

“A shock to one or more of the small number of high-income sectors could also represent a significant vulnerability for the public finances and one whose impact may not be gradual,” the tax paper stated.