Higher rates of income tax and VAT needed for future State spending, ESRI

ireland
Higher Rates Of Income Tax And Vat Needed For Future State Spending, Esri Higher Rates Of Income Tax And Vat Needed For Future State Spending, Esri
In a new report, the think-tank said future spending pressures combined with potential declines in corporation and motor tax receipts were likely to result in higher taxes in the years ahead.
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Digital Desk Staff

Higher rates of income tax, VAT and property tax may be needed to fund future government spending, the Economic and Social Research Institute (ESRI) has warned.

In a new report, the think-tank said future spending pressures combined with potential declines in corporation and motor tax receipts were likely to result in higher taxes in the years ahead.

As The Irish Times reports, while increasing tax should be avoided until the economy has recovered from the pandemic, it said increases in income tax, VAT or the local property tax could “raise significant sums of revenue”.

Increasing the standard and higher rates of income tax by 1 percentage point – from 20 per cent to 21 per cent and from 40 per cent to 41 per cent respectively – would raise almost €1 billion a year, mostly from the top third of income earners, it said.

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In its programme for government agreed last year, the Coalition pledged not to touch income tax or universal social charge rates, while Fine Gael has promised to reduce the income tax burden on middle-income earners.

Percentage point

Alternatively, raising the standard and reduced rates of VAT by 1 percentage point could generate an additional €690 million per year, the ESRI said.

An extra €275 million could also be raised by bringing recently-built properties into the scope of the local property tax (LPT) and using updated valuations for properties. The LPT currently applies only to homes built before 2013.

While this could lead to sharp increases in tax liabilities incurred by some property owners, the Government could simultaneously increase the income limits below which one can defer the liability, the ESRI said.

In its report, the institute also highlighted the potential for raising revenue by abolishing certain tax reliefs linked to pensions and capital gains tax, some of which, it said, had “questionable economic rationale” or were poorly targeted.

It also singled the Government’s help-to-buy scheme, which provides tax rebates for first-time home buyers to help them get a deposit, suggesting many claimants already had the required deposit and were using it to buy above-average-price homes.

The ESRI also examined the possibility of a wealth tax but concluded that one which exempted property would raise little revenue unless levied at very high rates

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