The Government is said to be considering a new tax rate to ease pressure on middle-income earners as the cost of living continues to rise.
Tánaiste Leo Varadkar said a new rate of 30 per cent is being examined by Minister for Finance Paschal Donohue to see if it is possible.
At present, a single person earning up to €36,800 a year pays income tax of 20 per cent, while any yearly income above that level for a single person is taxed at a rate of 40 per cent.
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Mr Varadkar said: “One thing we should take a look at, and I have asked Minister Donohoe to look at the pros and cons of it, is whether we should have a middle rate of 30 per cent because you do suddenly go from 20 per cent to 40 per cent. There might be a case for having a middle rate of 30 per cent for people on middle incomes so that you wouldn’t maybe get to that highest rate of 40 per cent until you earn a little bit more.
“We are a low tax economy in the round, but we are not low tax when it comes to income tax, particularly for people on middle incomes, those who earn more than €38,000, couples who earn more than €60,000 or €70,000.”
The Tánaiste said the Government had planned to increase the current bands at which different tax rates kick in as part of budget 2023. However, this may now be accelerated due to concerns over rising inflation.
He added that the inflation crisis could last for two years and said increases in pensions, welfare and childcare subsidies would be needed to help people cope with rising costs.
In a speech to the Institute of International and European Affairs (IIEA), Mr Varadkar called on central banks to “do their bit” and “reign in” quantitative easing at an appropriate pace rather than increasing interest rates.
He said: “We have not seen this [inflation] phenomenon since the early 1980s. While I might not agree with the exact numbers, I agree with the ESRI’s assessment that the spike in inflation is not temporary. It could go on for two years or more.
“It requires a long-term response as well as temporary measures. As every doctor knows, it’s important to treat the symptoms, and you must also treat the underlying disease.”
In an indication of possible measures to be announced in the next budget, he said that “pay rises and increases in pensions and social welfare will be needed to compensate people at least in part for the higher cost of living.
“However, this is not a solution to inflation. Many businesses will simply fund pay rises by increasing what they charge customers for goods and services, thus wiping out the gains.”
The Tánaiste added: “So, I believe we need a comprehensive anti-inflation strategy to reduce the cost of living. Central banks must do their bit, and I believe it would be better if they reigned in quantitative easing at an appropriate pace, rather [than] increasing interest rates at this time.”
Mr Varadkar also hinted that the Government would aim to reduce the cost of services such as childcare next year.
He said: “Childcare is already subsidised in Ireland. The focus of additional subsidies this year has been on paying staff better and improving quality.
“Next year, increased subsidies should be used to reduce costs considerably for parents. This will increase disposable family incomes and make it more attractive for parents to return to the labour market, thus helping to fill vacant positions and moderate wage inflation.
“The same applies to charges for healthcare. While we have made real progress in recent years in reducing the cost of medicines and extending free GP care, Ireland remains an outlier. It’s simply the case that other Europeans do not have to pay so much to see their doctor, attend a hospital or buy medicines. The same is true of the cost of a higher education.”
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