Indexing tax system would boost pay of 2m workers but cost up to €1.1bn a year

Minister for Finance Paschal Donohoe smiles at the start of a Economic and Financial Affairs Council meeting at the European Council in Brussels last month.Indexing tax bands and credits would boost the take-home pay of up to 2 million taxpayers in the Republic while costing the Government between €630 million and €1.1 billion a year to implement, the Government’s high-level tax strategy group has estimated.

The fact that taxpayers here get dragged into paying significantly more tax when in receipt of a pay rise has long been a source of complaint. “Income tax indexation is primarily the adjustment of tax credits and income tax rate bands in response to inflation and or wage growth,” it said, noting the policy intention is to avoid bracket creep.

By international standards workers here end up paying the higher 40 per cent rate at relatively low rates of income – on anything above €36,800 for a single person. In a separate paper on social protection, the group also costed a €15 hike in all weekly social welfare payments, as some Opposition parties have been calling for to address the current cost-of-living squeeze, at €1.1 billion.

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