THE MINISTER FOR Finance Michael McGrath has ruled out the introduction of a 30% income tax rate in this year’s Budget but said workers can expect some changes to tax bands.

The idea of a third rate of income tax between the standard rate of 20% and the higher rate of 40% was suggested by Taoiseach Leo Varadkar and Fine Gael ahead of last year’s Budget.

However, the idea was met with some resistance from within Government with the Green Party opposing it and Fianna Fáil offering a tepid reaction.

Speaking to reporters in Dublin today, Minister McGrath said it would not be possible to introduce a third tax band in this year’s Budget.

“You can’t implement it in January 2024. That is absolutely the case because it does require extensive change to revenue systems and would need a long lead in period,” Minister McGrath said.

“But we will be setting out on Budget day what are the pros and cons and we will have more to say on Budget day in relation to the possibility of a third rate of tax,” he added.

The Government intends to publish a review of the personal taxation code (which will include an examination of the potential for a third rate of income tax) on Budget day. 

“There are pluses and minuses of bringing in a third rate of income tax and the Taoiseach himself has acknowledged that,” McGrath said.

“The main obvious benefit is that it is a bridging rate from the standard rate of 20% and the higher rate of 40% but there are downsides too in that people who earn less than the entry point don’t benefit at all.”

He also said the impact on certain tax reliefs, including pension tax relief, needs to be taken into consideration.

With three weeks to go to the Budget (10 October), McGrath told reporters today that he wants to be realistic with people and that the Government will not be able to meet everybody’s demands.

“I always believe that you’re far better to try to surprise people on the upside rather than raising expectations in the weeks leading up to a Budget and then falling short,” he said. 

McGrath said the Budget will be centered on the Government’s priorities which are housing and supporting people with the cost of living.

One-off measures 

In relation to temporary one-off measures in the Budget – such an the energy support payments made last year – the Minister said he agrees with the Taoiseach that the level of one off measures should not be on a scale comparable with last year.

He said this is because the environment is different and inflation is falling.

Last year, one-off measures included in the Budget totalled €4 billion.

“In the round I do think it should be on a smaller scale to last year,” McGrath said, adding that he wants to provide support to those who need it most without pushing inflation in the wrong direction.

“It is a delicate balance that we have to strike but it is one that we are determined to get right,” he said.

Earlier today, the Central Bank published its quarterly bulletin in which it said it expects that the current inflation rate will see a “gradual and uneven” decline over the next two years.

Responding to the bulletin, McGrath said: “we are undoubtedly seeing a weakening of the external environment and as a small open-economy country that of course is weighing on Ireland.

He added that we are now seeing interest rate rises having their desired impact of dampening demand, which will in turn help reduce inflation.