Minister for Finance Simon Harris on Monday appeared to concede that his planned income tax package in the upcoming budget would merely inflation-proof the budget rather than provide workers with a significant cut in the tax burden and more money in their pockets.
If the tax bands and credits are not adjusted for wage inflation each year, then proportionately more income gets sucked up in income tax.
At an event hosted by the Economic & Social Research Institute (ESRI), Harris said the income tax package would take up roughly €1.2 billion of the €1.5 billion earmarked for tax measures.
According to his own department’s Tax Strategy Group, inflation-proofing or indexing the budget against a 4 per cent rise in wages (the current rate of growth) costs €1.16 billion.
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So the changes will merely help workers stand still in tax terms.
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Nonetheless, Harris insisted the changes would be meaningful. “Nobody in Government would be of the view that hundreds of euros of additional benefit to families doesn’t make a difference. Things can be impactful and modest,” he said.
Harris has oscillated between whetting workers’ appetites for a sizeable income tax package and rowing in with Minister for Public Expenditure Jack Chambers’s more sober view that the measures would be “modest”, benefiting most people by only a few hundred euro a year.
There has been speculation that the budget could see the threshold at which people begin to pay the higher rate of income tax rise from €44,000 to €46,000.
According to an analysis by Davy stockbrokers, such a move would equate to an annual tax saving of about €400.
“This would mark a return to gradual income tax reductions after Budget 2026 did not include changes to income tax bands,” it said.
The changes to Universal Social Charge are likely to be very modest, reflecting recent changes to the minimum wage.
The incrementalist approach adopted by the Coalition is unlikely to quell the outcry over living costs, which have spiralled in recent years and are now on the march again as a result of a renewed spike in oil and gas prices.
