Renua Ireland will propose a flat rate income tax of 23 per cent when it publishes its pre-budget submission on Monday.
The party has made a flat tax the core proposal of its submission, saying that Ireland should move to this system over a period of years.
The party, under leader Lucinda Creighton, has been working on the proposal for several months and has argued that it would reward work and also encourage job growth.
It provides that everybody irrespective of income pay the same tax rate – it has proposed 23 per cent.
The party has contended the current tax regime does not provide enough incentive to work, especially since the introduction of USC.
“Relative to other OECD countries, our tax base has contracted leaving people earning relatively modest salaries paying most of tax collected from household incomes,” the document has stated.
Balancing measures
The flat tax, if implemented, would result in those on lower incomes paying more tax if the rate was applied without any balancing measures. At present the effective rate of tax for somebody earning €18,000 a year is 3.9 per cent and it is only at €35,000 that the effective rates are close to the proposed flat rate tax.
The party will propose a tax rebate for lower income households, done on a sliding scale to avoid income cliffs.
The poorest households would receive the largest direct payment. Child benefit would remain unchanged.
However, the proposal is a major departure from the current one and will be rigorously scrutinised by other parties who are likely to question if the model is as fair and equitable as Renua has claimed.
Under this system, the current marginal rate of tax, USC and PRSI would all be abolished. It would result in significant falls in the income tax take from middle and higher earners (who would retain 77 per cent of their income).
The party has said this new system would still account for 80 per cent of current tax and has asserted that higher compliance, less use of tax reduction measures and other multiplier effects would make good on the deficit.
Similar flat tax regimes are already in place in Jersey, Guernsey, Hungary, Romania, Latvia, Lithuania and Estonia.
