Adjusting income tax bands and credits for inflation would cost more than €1bn next year
Pre-budget papers indicate that adjusting income tax bands for 4% inflation would cost over €1 billion, consuming most of the government's planned tax package. The documents also highlight the Irish tax system's heavy reliance on high earners.
Why it matters
The report underscores the fiscal constraints facing the Irish government as it attempts to balance tax relief with economic stability.
Adjusting income tax bands and credits fully for expected wage inflation of 4 per cent next year would cost more than €1 billion next year, using up much of the €1.5 billion set aside for the budget day tax package, according to pre-budget papers published on Thursday.
The figures illustrate the challenges facing Minister for Finance Simon Harris in offering real gains to taxpayers. If bands and credits need to be adjusted for inflation , then those receiving wage increases pay proportionately more in tax, partly due to paying more of their income tax at the higher 40 per cent rate.
The Tax Strategy Group papers, drawn up by senior civil servants in advance of the budget, also show the huge reliance on higher earners to pay income tax.
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