Taxation proposals in the Programme for Government

A Programme for Government (PfG), negotiated between Fianna Fáil, Fine Gael and the Green Party was published on 15 June 2020. If ratified by the respective parties, it will form the basis of government policies over the next five years.

For the most part, taxation is dealt with in the form of a number of statements of principles, some of them somewhat vague, although there are also a number of specific measures proposed. At a macroeconomic level, the government will borrow to fund an investment-led recovery, with a particular focus on capital expenditure in areas such as health, housing, infrastructure and climate action, and investment in skills and retraining. While the PfG does not rule out increases in taxation, it states that any rise will be focussed on behaviours with negative externalities, such as plastics, sugar and carbon rather than by increasing direct taxation.

All of this will be set out in more detail in an economic recovery plan to be published at the time of Budget 2021 in October.

Income Tax

The PfG pledges that:

There will be no increases to income tax or USC rates over the lifetime of the government;
Tax bands and credits will be indexed with effect from 2022. This should help to ensure that pay rises in line with inflation will not be significantly eroded by increased taxes;
Removing some inequities in the tax treatment of self-employed people by equalising the Earned Income Credit (currently €1,500 per annum) with the PAYE Credit (currently €1,650) and also, provided resources allow in due course, removing the 3% USC surcharge on certain self-employment income above €100,000;
Increasing the Home Carer Tax Credit (currently €1,600).

Social Insurance (PRSI)

Significant changes are proposed however in the area of PRSI, including:

Possible increases to all classes of PRSI over time in order to replenish the social insurance fund;
Possible changes to be introduced to benefits available under the PRSI system such as the state pension, parental leave and medical treatment benefits;
Facilitate those without a full social insurance record to continue making PRSI payments beyond pensionable age. The whole area of the retirement age and State pension is to be the subject of a review with some potentially significant changes to be introduced in due course.

Corporation Tax

There are few specific changes mooted in this area but the PFG does restate a number of important principles, including:

A commitment to the 12.5% rate of corporation tax;
Continued engagement with the OECD BEPS (base erosion and profit shifting) process and international corporate tax reform;
A statement that tax is a national competence, which is important in setting out Ireland’s stall in this area.

Small Business Taxes

The PfG commits to helping small business with proposals for:

An annual review of Capital Gains Tax (CGT) with the objective of supporting innovation-driven enterprises that will help in the transition to a low-carbon economy;
Put in place measures designed to encourage greater uptake of the R&D tax credit by small indigenous companies. Changes to record-keeping requirements and pre-approval processes have been cited as potential measures to be introduced.

Carbon Tax

The carbon tax is to gradually rise by €7.50 per tonne annually until it reaches €100 per tonne by 2030, and not €80 as previously planned. The proceeds of the tax are to be reinvested in projects that will mitigate the effect on those adversely impacted by the measure.

Local Property Tax (LPT)

There are a number of general principles set out in the area of LPT, namely:

Certain new homes, which are currently not subject to LPT are to be brought into the taxation system;
Any other reforms introduced will be designed to ensure that most homeowners will not see an increase in their LPT liability.

Commission on Welfare and Taxation

The PfG also proposes to set up a Commission on Welfare and Taxation to independently consider how best the tax system can support economic activity while also ensuring sufficient resources to meet the costs of public services and supports.

The outcome of this, and other reviews proposed in the PfG, as well as October’s economic recovery plan will play a key role but the PfG at the very least gives a good indication of the direction of taxation policy over the next five years.

Tax services