Kite-flying on the budget continued on Wednesday with Taoiseach Leo Varadkar telling the Dáil that he “will be insisting” that tax credits and bands will be “indexed”, or adjusted in line with inflation.
It is understood that Department of Finance calculations estimate the cost of this move at €1.3 billion – the size of the total tax package in last year’s budget.
The Fianna Fáil Minister for Finance Michael McGrath told reporters he would be “firm” in designing the budget tax package after a group of Fine Gael TDs called for tax breaks for middle-income earners.
Asked if he felt he was being bullied over the budget, Mr McGrath replied: “Certainly not. Anybody who knows me will know that I can be as tough as anybody else when it comes to negotiations. I will always be conciliatory and polite.
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“But I can be as firm as I need to be. And I will be. I will be designing the tax package and it will be done following close consultation with all of our colleagues across Government and that work will be finalised in the coming months,” he said.
Although the budget is more than four months away, various elements in the Coalition have been keen to set out their stall in recent weeks.
In recent days, three Fine Gael junior ministers called for a €1,000 tax break for middle-income families, with the Taoiseach’s spokesman later confirming that he had prior knowledge of their intention.
On Wednesday, Mr Varadkar himself told the Dáil: “There is a clear commitment in the programme for Government that we will index tax bands and tax credits should we be able to afford to do so. We can do so and I will be insisting that commitment be honoured.”
While he said “the exact detail” was still to be worked out, he said: “We can afford to do it and that is why there will be a tax package in the next budget, as well as a welfare and pensions packages and all the things one would expect to see in any budget in normal times.”
But Mr Varadkar insisted that this would be done without any impact on spending on public services and welfare.
“Let me be clear once again, that no income tax reductions will be funded by curbing or reducing public services,” he said.
“That certainly has not been the case for the past number of years. We have reduced income taxes while increasing spending on public services and public infrastructure. That is what you can achieve if you pursue the right economic policies and achieve economic growth.”
Speaking earlier, Mr McGrath said he would be meeting his tax team later on Wednesday to look at all the choices in relation to tax measures. He said he himself had ideas on tax that he would like to progress.
He said he was “confident we will be able to reduce further the burden of income tax, not just for middle and high earners, but also for low- to middle-income earners”.
“We have a highly progressive tax system, where the heaviest burden is carried by those in the middle and at the upper end. The tax system can play a role in supporting lower-income families and individuals in terms of the costs and the pressures that they face at a time of high inflation as well.”
But he said that any measures on the tax front would have to be financed from recurring income.
“What I will not allow to happen as Minister of Finance is for windfall receipts to be used to fund permanent measures or permanent tax reductions or permanent expenditure increases,” he said.
