Budget 2023: Workers on €50,000 to save €500

Budget 2023: Workers on €50,000 to save €500 under plans to expand highest tax bands

Negotiations are ongoing about the introduction of a new credit for renters and a reduction paid by landlords on rental income.

Workers will save at least €500 a year on average, under Budget plans to expand income bands for the highest rate of tax.

Finance Minister Paschal Donohoe is set to increase the 40pc income tax band by €2,500, meaning workers will not have to pay the higher rate on any earnings below €39,300.

The move will lead to significant savings for taxpayers – with a single person earning €50,000 taking home at least an extra €500 a year under the plan agreed by the Coalition parties.

Changes to tax credits are also expected to put more money in workers’ pockets on top of the changes to the income tax bands.

Meanwhile, negotiations are ongoing about the introduction of a new tax credit for renters and a reduction in tax paid by landlords on rental income.

Organisations representing property owners have called for the tax rate on rent to be reduced to 25pc from 50pc to stop landlords exiting the rental market.

The €2,500 increase in the income tax band would be the highest in more than a decade and goes some way to achieving Fine Gael’s pledge to make the entry point for the higher rate of tax €50,000.

In last year’s Budget, Mr Donohoe increased the income band for the 40pc rate by €1,500.

Under plans being finalised by the Government, 20pc tax rate will be applied to all income under €39,300.

However, the Budget plan signals bad news for Tánaiste Leo Varadkar’s proposal to introduce a third income tax band with a 30pc rate.

Mr Varadkar has continued to publicly insist his idea is still under consideration, but senior Government source say it will not be introduced in this Budget.

A recent report by the Government Tax Strategy Group said increasing tax bands by €2,200 for the higher rate while hiking tax credits by €75 would benefit 1.9 million taxpayers.

The Government has more than €1bn to spend on tax cuts in next Tuesday’s Budget but this has to cover the cost of extending tax reductions introduced during the year due to the cost of living crisis sparked by the Russian invasion of Ukraine.

This includes extending the reduction of excise duty on petrol and diesel over the coming months but the cuts on motor fuels are not expected to be kept in placed indefinitely.

Excise duty on petrol was reduced by 15c and on diesel by 10c.

The Government is also examining how to off-set forthcoming increases on carbon taxes, which are due to come into place on October 12 and will also lead to an increase in petrol and diesel prices.

Senior Fine Gael figures are anxious to delay or offset the tax, which will increase the price of a 60-litre tank of diesel by €1.48 and a similar tank of petrol by €1.28.

Carbon tax increases on home heating oil do not come into effect until May every year and there is a suggestion in Government that the same could be done with the tax on fuels.

Separately, there are high-level Budget talks ongoing over how to support businesses coming under financial pressure due to the energy crisis.

Senior officials are trying to draft a scheme to support businesses that are most in need of Government assistance due to the rising cost of electricity.

However, there is difficulty in designing a scheme targeted purely at businesses.

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