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Most Budget 2019 tax proposals would favour rich at expense of lower income workers

Just two of the income taxation proposals currently under consideration for Budget 2019 would produce fair outcomes: an increase in the personal tax credit for everyone or a reduction in the 0.5% and 2% USC rates.

While Social Justice Ireland believe that there should be no net reduction in tax in Budget 2019, our study Fairness and Changing Income Taxes, published today, shows that the impact of most income tax proposals currently being considered by government would give far greater benefit to people earning higher incomes than to lower income employees. These include a decrease in the top tax rate and reducing the top two USC bands.

Fairness and Changing Income Taxes assesses the fairness of seven possible income taxation options, each with a full-year cost of between €254m to €348m; equivalent to between 1.2% and 1.6% of the annual income taxation yield. The seven options are:

  • an increase in the personal tax credit of €100 with commensurate increases in couple, widowed parents and the single person child carer credit (full year cost €254m)
  • the abolition of the 0.5% USC rate - that applies to income below €12,012 and a 1% point decrease in the 2% USC rate – that applies to income between €12,012 and €19,372 (full year cost €319m)
  • a decrease in the top tax rate from 40% to 39% (full year cost €348m)
  • a 0.75% point decrease in the 4.75% USC rate – that applies to income between €19,372 and €70,044 (full year cost €306m)
  • a 1.5% point decrease in the 8% USC rate – that applies to income above €70,044 (full year cost €256m)
  • an increase in the standard rate band (20% tax band) of €1,500 (full year cost €316m)
  • a decrease in the standard rate of tax from 20% to 19.5% (full year cost €330m)

Overall only two changes lead to a fair outcome: increasing the personal tax credit; and reducing the 0.5% and 2% USC rates. Each of the two fair options would provide beneficiaries with an improvement in their annual income of around €90 - €130.

Each of the five unfair options would skew benefits towards those with higher incomes.

Increasing the personal tax credit would provide a fairer apportioning across the income distribution as the gain would be the same for everyone earning more than €16,500. Reducing the 0.5% USC rate and the 2% USC rate benefits all those with incomes of more than €13,000.

A decrease in the top tax rate only benefits those paying tax at that rate. Similarly reducing the top two USC bands also provides those with the most income with the greatest gains.

As noted above, net reductions to income taxes are not a central priority for Social Justice Ireland in the forthcoming Budget. We believe that any available money should be used to improve Ireland's social services and infrastructure, reduce poverty and social exclusion ,and increase the number of jobs for disadvantaged groups such as for people with disabilities and for the long term unemployed.

The full study may be accessed here.