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McGrath said he expects to index tax credits and bands in the next budget.
National Economic Dialogue
Finance Minister wants 'prudent' Budget as Taoiseach seeks threshold for higher tax rate at €50k
Michael McGrath said his “overarching priorities” for the budget include the protection of living standards.
MINISTER FOR FINANCE Michael McGrath said today that the Budget 2024 will be “prudent” and will provide “an appropriate level of support to our society and our economy”.
Speaking to reporters before the National Economic Dialogue (NED) in Dublin Castle today, the Finance Minister said the next budget will take into consideration an ongoing review of the personal taxation code, although no policy decision has been made as of yet.
Taoiseach Leo Varadkar, while addressing the NED today, said it was his party’s policy to get to the point that nobody earning less than €50,000 would have to pay the higher rate of income tax.
The dialogue is an integral part of the annual budgetary procedure and provides a platform for discussion on a wide range of issues from key stakeholders.
Addressing the current expected surpluses in the public finances, McGrath said: “It will be a prudent budget but it will also seek to respond to the pressures that are there.
“It will be within certain parameters and one of those parameters is not using windfall, volatile receipts to fund permanent measures.
“That will be one of the anchors of this budget,” he added.
Using windfall tax receipts for long-term, permanent projects was accepted across the political spectrum today.
Minister for Public Expenditure and Reform Paschal Donohoe said it is “so important” to consider the risks when determining how to use the surplus and that government must make sure that future budgets remain affordable.
Donohoe said: “Both of us experienced the political and social cost of what happens when the budget announcements of one year, become unaffordable the next year. And none of us want to see that happen again.”
The minister said: “You can only appreciate their value when you can see the uncertainty and the risks now taking place around us.”
“We still need to be careful. We need to make sure that money we are spending in 2024 is still there for us in 2025 and 2026,” the Minister added.
The Taoiseach said he recognised the advice from the Central Bank and the Irish Fiscal Advisory that windfall tax receipts cannot be used to fund permanent or recurring expenditure commitments.
“But even if you accept the position, we still have plenty of room because of the growth of the economy.”
He said there were false dichotomies in the choices of saving or spending the surplus, as well as whether to reduce taxes or increase spending.
McGrath said his “overarching priorities” for the upcoming budget include the protection of living standards.
“It’s trying to strike the right balance between providing an appropriate level of support to our society and our economy while at the same time not stoking inflation any further,” McGrath said.
“That will involve decisions around taxation and welfare and trying to reduce costs for families.”
He said other priorities include housing and investment in public services and infrastructure
Donohoe agreed that progressing housing will be a “critical element” for the Government when drafting Budget 2024.
“So it’s trying to strike the right balance between providing an appropriate level of support to our society and our economy while at the same time not stoking inflation any further,” McGrath said.
However Varadkar said a “more cautious approach” to the next budget could “push more people into poverty or financial distress” in his address to the dialogue.
An Taoiseach added that the government must not disregard households who face financial difficulties regardless of the state of the economy.
Varadkar said the strength of the economy enabled the government to make a wide range of measures.
“We’re able to reduce income taxes, we’re able to increase spending, we’re able to reduce the debt, we’re able invest more in services and infrastructure, we’re able to set aside money for future problems.
“We can do all of those things, it’s not a choice among them. The choice is a different one; it is the quantum or the split.”
Tax breaks
The Fine Gael leader said it was his party policy to get to the point that nobody earning less than €50,000 would have to pay the higher rate of income tax.
Varadkar added: “Whether we can achieve that in the next two budgets, I can’t say.”
As it stands, the higher rate of tax kicks in at income above €40,000.
The Taoiseach said in his opening speech that isn’t is “simply not fair” that average full-time workers are “hit with the higher rate of income tax”.
“And it’s not fair that the tax system erodes any pay increase they do get, or overtime worked,” Varadkar added.
He said that this practice of taxation “isn’t the norm in competitor countries” that much of the younger generations are emigrating to.
Varakdar said: “In line with the Programme for Government, this budget should make substantial progress on lifting the point at which an individual pays the higher rate of income tax and it should also benefit all income tax payers to ensure fairness.
“This will increase take-home pay and will help with consumer confidence and demand. It should also help moderate demands on employers for bigger increases.”
Donohoe said Government has decided to increase capital investment next year and that this had been decided under the National Development Plan.
Tánaiste Mícheál Martin said Fianna Fáil believe there will be a “taxation package” within the upcoming budget but the details of that will be upon the government to side “in due course”.
Martin said: “[Fianna Fáil] want a fair taxation system that all workers will benefit from whatever measures that we bring in.”
McGrath said he expects to index tax credits and bands in the next budget.
He said the economy is close to capacity with record-low unemployment.
“The scarcity of labour is now a key constraint across different parts of the economy. That said, if you do not make any changes to your taxation system, it will remain static at a time of rising incomes.
“In effect, representing an increase in the burden of taxation through the back door.”
He said there was a programme for government commitment to indexing tax credits and bands.
“I expect, given the strong position in our finances, that is a commitment we will again be able to honour in the forthcoming budget.”
Employment Growth
Minister for Enterprise Simon Coveney said there had been “extraordinary growth” in job numbers in Ireland.
Asked about job cuts in the technology sector, he said that a lot of global companies have “effectively taken back” the unstable growth and job creation of past year.
“This is obviously something we’re following closely but I would say the motivation behind these decisions is very much driven by global factors, not Irish factors.”
He said the impact of job cuts has hit a smaller percentage in Ireland than the overall tech sector globally.
“We need to stay close to these big firms to understand their thinking and plan for that.”
Minister for Higher Education Simon Harris said he planned to bring forward measures in the budget which would increase flexibility in the education system, change student grant schemes and introduce more short-term and online courses.
He said he was hopeful to reach 9,000 new apprenticeships this year.
An Taoiseach told the dialogue that the economy is in a “much stronger position” and that a record 2.6 billion people are employed in the country.
Varadkar said “there’s a job for everyone who wants one” and that policy currently being developed by the government is aiming to make sure it’s kept as such through improving incomes and wages.
Additional reporting by Muiris O’Cearbhaill
