If the government parties were committed to implementing the proposals in the Programme for Government, they would not be having this current tax-cut row. The Programme states:
‘In Budget 2021, there will be no change to income tax credits or bands. From Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be indexed linked to earnings.’
The Programme can’t be any clearer. No indexation in 2021 (due to uncertainty during the Covid pandemic and lockdowns). Starting in 2022, income tax credits and bands will be indexed to wage growth. The Taoiseach was adamant:
‘I’ve been very clear that I’m not tying myself to any specific policy, I am tying myself to the programme for government commitment, which is that we index tax bands and credits.’
So what should happen in Budget 2024 if the Programme’s tax commitments are honoured? Let’s remember that Fine Gael is calling for an increase in the standard rate tax band of €4,000 and personal tax credits by €100.
If the Programme for Government’s commitment were honoured – that the Standard Rate Tax Band be increased in line with wages – then next year the tax band would be increased by €432 – not Fine Gael’s proposed €4,000. This is due to wages increasing by 14.5 percent between 2021 and 2024.
If we apply the Programme for Government’s formula to personal tax credits, they would rise from €1,775 to €1,890 – an increase of €115.
Of course, all commitments in a Programme must be judged against unexpected events. And one can reasonably argue that the high levels of inflation we are experiencing were unexpected.
Therefore, let’s index the tax measures mentioned in the Programme to inflation.
Between 2021 and 2024, the Government projects inflation to rise by 16.2 percent – higher than the wage increase rate. This would mean the standard rate tax band would increase by €1,030; again, well below the Fine Gael demand.
Inflation-indexing personal tax credits would see them rise by €143 – from €17,75 to €1,918.
Given that a formula for increasing the standard rate tax band and personal credits has already been agreed by the three parties in the Programme for Government, what is the basis for abandoning this commitment? This question has not been asked in the debate.
Opposition parties (and even Fianna Fail and the Greens) shouldn’t feed this unjustified demand. Rather, they should stick to the Programme commitment - with a slight amendment of indexing increases to the unexpected inflation increases).
This would mean (with a little rounding):
- Increase the standard rate tax band by €1,050
- Increase personal tax credits by €145
This would free up about €1 billion from Fine Gael’s tax demand which has been estimated to cost €1.5 billion.
Are there better ways to spend this €1 billion to assist ‘middle Ireland’ – and ‘low-income Ireland’ as well?
That will be subject of my next post.
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