PLANS TO INCREASE the threshold at which taxpayers begin paying the higher rate of tax would cost €2.3bn, according to the Government’s tax strategy group. 

The group published a number of papers ahead of Budget 2020 detailing the changes in taxation in recent years, and informing decisions on tax policy for the upcoming year. 

Taoiseach Leo Varadkar last year promised to increase the entry point into the higher tax rate, which currently sits at €35,300, to €50,000 over the next five years.

If the tax band was to be increased within a single year, it would come at a cost of €2.3bn to tax revenues, the paper said. 

The number of people paying tax at the higher rate has more than doubled in the past decade, from 277,086 people in 2010, to 576,000 in 2019. 

It also indicated that a €3,000 increase on all standard rate bands would cost €524m in the first year, and €610m in a full year. 

USC

As per the Programme for Government (PPG) commitments, the phasing out of the USC which was introduced in 2011 following the economic crash, is also outlined in the document. 

The paper warns that further reductions in the USC could lead to a “narrowing of the tax bases” and instead, recommends increasing the rate at which the tax applies to workers. 

The three lowest rates as it stands are, 0.5% tax on earnings up to 12,012, 2% tax thereafter up to €19,874, and 4.5% tax thereafter up to €70,044.

It states: “An alternative change that could meet the PPG commitment and benefit lower and middle income households, would be to continue to increase the threshold that the 2% rate of USC currently applies. 

“An increase in the threshold at which the 4.5% aplies from the current level of €19,874 would benefite all taxpayers from that income level up, including incomes that are below the average wage of c. €38,900.”

Climate action

In a separate paper, the link between taxation and the drive for climate action highlighted the revenues that could be earned through a hike in the carbon tax. 

The current rate of carbon tax is €20 per tonne of CO2 and is applied on diesel, petrol, kerosene, natural gas, LPG, coal and peat, used in transport, home heating and machinery. 

This translates at around €3.39 in total for a 60 litre fill, or around 3-4% of the retail price of a litre of petrol. 

Options outlined in relation to increasing the carbon tax highlight that a €30 tax per tonne of CO2 would boost tax revenues by €216m, or €430m on a €40 per tonne of CO2 tax rate.