Budget 2019: Changing tax bands to benefit middle-income earners
Squeezed middle-income earners are to benefit from a change in tax bands in the upcoming budget, the Taoiseach has revealed.
The Government is also working on bringing in a form of jobseeker’s allowance for the self-employed, while those on social welfare will get a bump in their payments, Leo Varadkar has said.
Mr Varadkar has outlined a number of measures being worked on as part of Budget 2019. These include:
- A broadly balanced budget which will move into a surplus in 2020 to allow for a reduction in the national debt;
- A general focus on investment in public services and infrastructure over tax reduction;
- Increases in carbon tax, which could see a rise in diesel or petrol;
- An increase in the income level at which earners become liable for the higher 40% income tax rate;
- Rises in social welfare payments to bring them in line with inflation.
Focusing on middle-income earners — many of whom received a modest boost when the tax bands were adjusted as part of last October’s budget — Mr Varadkar said they would see gains again this year.
“There will be a tax package, perhaps similar to last year, relatively modest,” he said. “But a real focus is on the standard cut-off point, the point at which so many people start paying the higher rate of income tax. People on very modest incomes pay the highest rate of income tax.
“The average person working full time in Ireland, if you exclude students and people working part-time, earns around €40 to €45k a year. Those people pay income tax at the very highest rate. You get an increase, an increment, almost half is gone on tax and USC.”
Finance Minister Paschal Donohoe last year raised the threshold for the higher rate of income tax by €750 to €34,550.
As part of the confidence and supply agreement with Fianna Fáil, the Government must keep a minimum 2:1 split between investment in services and tax measures.
The Taoiseach said this year’s proportion will be “much greater than that” with a “real focus” on spending on public services and development and improvement on infrastructure.
“Where there are additional resources available for allocation in budget time, recognising the unmet needs, these will go very heavily into increased spending and improving public infrastructure over tax reduction,” said Mr Varadkar.
Turning to social welfare, which received a total budget allocation €20bn this year, the Taoiseach said the Government will be aiming to increase weekly rates again in 2019.
Last October’s budget provided those on social welfare payments with a €5 per week increase, but any potential hike in payments as part of the upcoming budget still have to be hammered out.
“We don’t have a figure agreed by any means at this stage but the aim is to increase it above the rate of inflation, thus retaining the value of the current payments,” said Mr Varadkar.
“We are also working on proposals for a form of jobseekers for the self-employed.”
Tuning to tax increases, Mr Varadkar said there will be a big focus on climate change, which could signal a rise in the price of diesel or petrol.
In their annual tax strategy papers, senior government officials last week put forward the option of increasing diesel tax to the level of petrol over five years, which would yield around €71m extra a year.
“We are also going to do some work on carbon tax,” said Mr Varadkar. “We are very much of the view that if we are going to meet our climate change obligations, then we will have to grasp the nettle in increasing the carbon tax over the next couple of years, but very much recognising that some people who are in poverty or who are the most vulnerable can be the worst affected by that so there will have to be compensatory measures.”
